Both the Australian Dollar (AUD) and Canadian Dollar (CAD) faced pressure against the US Dollar (USD) at the start of the week, as geopolitical developments and central bank policy divergence fueled USD strength. The AUD/USD pair extended its sideways consolidation for the third consecutive day, trading just above the 0.7000 mark during the Asian session on Monday. This movement was influenced by a hit to global risk sentiment following renewed closure of the Strait of Hormuz by Iran and the US Federal Reserve's hawkish tilt, which helped the USD stall its modest pullback from its highest level since May 2025, reached last Friday [1][2].
The Reserve Bank of Australia (RBA) signaled that additional rate hikes were possible if inflation persists, which limited downside for the AUD. However, technical indicators such as the breakdown below the 100-day Simple Moving Average (SMA) and the 50.0% Fibonacci retracement of the March-May upswing, along with momentum oscillators like the Relative Strength Index (RSI) near 37 and the MACD below zero, suggest persistent downside pressure for the AUD/USD pair. Key support levels include the 61.8% Fibonacci retracement, with further losses possible to the 78.6% level around 0.6928 and the prior swing base near 0.6832. Resistance is seen at 0.7055, 0.7085, 0.7108, and 0.7173 [1].
Meanwhile, the USD/CAD pair traded near the 1.4170-1.4175 region, close to its highest level since April 2025, as the USD benefited from safe-haven flows amid Iran's closure of the Strait of Hormuz and accusations against the US and Israel for violating the ceasefire. Iranian negotiators suspended talks with the US following threats from President Donald Trump, further denting risk appetite [2]. The CAD underperformed due to slowing economic growth and the Bank of Canada's (BoC) dovish stance, with investors expecting the BoC to hold rates steady through late 2026. In contrast, the Fed's latest projection signals rates could rise to 3.8% by year-end, indicating a 25-basis-point hike in the coming months. This policy divergence supports USD/CAD upside [2].
Crude Oil prices rose around 2% amid concerns about a fragile interim peace agreement between the US and Iran, which provided some support to the commodity-linked CAD. The market focus is now shifting to the release of Canadian consumer inflation figures later on Monday, which may act as a headwind for USD/CAD, though the fundamental backdrop suggests any corrective pullback will likely be limited [2].
CONCLUSION
Geopolitical tensions and central bank policy divergence have reinforced USD strength against both the AUD and CAD, with technical and fundamental factors pointing to continued downside pressure for the Australian and Canadian currencies. Market participants are closely watching upcoming inflation data and central bank signals for further direction, but the prevailing risk-off sentiment and hawkish Fed outlook suggest the USD may remain dominant in the near term.