The Canadian Dollar traded near a more-than-one-year low against the US Dollar on Wednesday, with USD/CAD reaching 1.4239 before stabilizing around 1.4230. The decline in crude oil prices continued to weigh on the Canadian currency, while the US Dollar found support from rising expectations of another Federal Reserve interest rate increase this year.
Geopolitical developments also supported the safe-haven US Dollar. Iranian President Masoud Pezeshkian reiterated that Iran’s ballistic missile program will not be included in negotiations with the United States, while former US President Donald Trump challenged Iranian claims regarding International Atomic Energy Agency inspections. These ongoing tensions between Washington and Tehran maintained pressure on the Iranian currency and reinforced demand for the Greenback.
The US Dollar Index, which measures the Greenback against major trading partners, held near 101.60, close to its highest level in over a year. Market expectations now heavily favor a Federal Reserve rate hike by December, with money markets pricing in nearly an 86% probability—up significantly from approximately 61% prior to the recent Federal Open Market Committee meeting. The central bank’s updated guidance also indicated that most policymakers still anticipate additional rate increases this year.
Investor focus is turning to Thursday’s release of the US Personal Consumption Expenditures (PCE) Price Index for May, the Federal Reserve’s preferred measure of inflation. This data release could provide important signal about the trajectory of monetary policy in the coming months.
Bank of Canada Governor Tiff Macklem recently highlighted that global financial flow imbalances, including China’s export surplus and the United States’ reliance on foreign capital, may pose increasing risks to financial stability. Meanwhile, FX analysts noted that the Canadian Dollar has faced sustained pressure due to narrowing interest rate differentials favoring the US Dollar, coupled with slowing economic growth and persistent trade uncertainties.