A diplomatic pause between the United States and Iran has triggered a risk-on mood in global markets, leading to a weaker US Dollar (USD) against most major currencies on Monday, except for the Canadian Dollar (CAD), which remains the worst-performing among majors [1][2]. The USD/CAD pair trades just below two-week highs at 1.1411, with the CAD extending losses for the second consecutive day. This weakness is primarily attributed to a sharp drop in oil prices, which have fallen more than $10 from last week's highs, with Brent Crude near $85.00 and WTI at $82.00 at the time of writing [1]. As oil is Canada's main export, the decline has undermined speculative demand for the Loonie [1].
In contrast, the Australian Dollar (AUD) has advanced to 0.7000, up 0.33% on the day, supported by both the weaker USD and improving expectations for Australian monetary policy following a strong June employment report [2]. The AUD was the strongest against the CAD, rising 0.39% on the day, according to a currency heat map [2]. Investors are awaiting upcoming inflation reports in Australia, which could influence the Reserve Bank of Australia's (RBA) next policy move [2].
Market participants remain cautious ahead of the US Federal Reserve's monetary policy meeting scheduled for Thursday. While markets are pricing a nearly 33% chance of a rate hike, the consensus is that the Fed will likely hold rates steady. Analysts at Brown Brothers Harriman see the risk skewed to the upside for the USD, suggesting that a hawkish Fed hold and strong US macro data could offer near-term support for the Greenback [1]. The final update of the Atlanta Fed GDPNow model, incorporating June durable goods orders data, is expected to refine market expectations for US economic activity [1].
Despite the current relief rally driven by Middle East de-escalation, risks to global energy supply persist, particularly after the Houthis claimed responsibility for attacks on Saudi facilities along the Red Sea [2]. Lower oil prices are helping to ease US inflation concerns, further limiting support for the USD [2].
CONCLUSION
The truce between the US and Iran has weakened the US Dollar, benefiting most major currencies except the Canadian Dollar, which is weighed down by falling oil prices. The Australian Dollar has outperformed, supported by strong domestic data and expectations of further RBA tightening. Markets are now focused on the upcoming Federal Reserve meeting, with the tone of the Fed's statement likely to determine the USD's near-term direction.