Canadian Dollar receives support from firm oil prices

USD/CAD extends its losses for the fourth successive day, trading around 1.3870 during the European hours on Tuesday. The currency pair depreciates as the commodity-linked Canadian Dollar (CAD) gains support from firming crude oil prices.

West Texas Intermediate (WTI) crude has stabilized around $84.10 per barrel following two consecutive sessions of gains. Oil prices could extend these gains further due to dimming prospects for a US-Iran deal, following President Donald Trump's statement that he has no interest in extending the interim peace agreement. The memorandum of understanding signed in June, which established a 60-day window for longer-term peace negotiations, officially expired on Monday.

Brent extends gains as US-Iran tensions keep crude in elevated range

Strategists at Brown Brothers Harriman note that Brent crude has “rallied to $91.85 a barrel, its highest level in more than three weeks, as the US-Iran Strait of Hormuz standoff drags on.” Elias Haddad and his team argue that “we continue to see crude oil prices driving the war narrative, with price swings likely to dictate the pace of escalation and de-escalation.” In their view, these dynamics “should keep Brent within a broad $70 to $100 range.”

Despite this pressure, the downside for USD/CAD may remain limited as the US Dollar (USD) draws support from safe-haven demand stemming from the geopolitical uncertainty between the US and Iran. However, the Greenback continues to face headwinds of its own as expectations for Federal Reserve rate hikes steadily fade.

An unexpected drop in July Nonfarm Payrolls alongside mild consumer inflation figures has undermined the argument for near-term monetary tightening. Reflected in this shifting sentiment, CME FedWatch Tool data indicates the probability of a Fed rate hike at the upcoming meeting has dropped to 36.6%, down from 48.4% just a week prior.

Goolsbee notes improving inflation but Fed tone still firmly hawkish

Fed's Goolsbee strikes a cautiously optimistic tone on inflation, acknowledging "a little bit better" readings and framing recent tariff and oil-driven price pressures as largely one-off shocks that can move into the "rear view mirror" as inflation returns toward 2%. The FXS Speechtracker score of 4.6/10 marks a notably softer impact relative to the historical average of 6.8/10, suggesting the remarks were less market-moving and more incremental in shaping expectations. Overall, the message points to gradual disinflation alongside a "steady" US economy, reinforcing a measured but still vigilant policy stance.

The FXS Fed Sentiment Index fell by 2.36 points to 134.61, indicating a modest pullback in perceived hawkishness following Goolsbee's comments. Despite the decline, the index remains well above the neutral 100 threshold, signaling that Fed communication, as captured by the FXS Fed Sentiment Index and FXS Speechtracker, continues to reside in hawkish territory even as inflation data show tentative improvement.