USD/CAD Drops Below 1.3750 Amid Middle East Optimism and Fed Caution

USD/CAD Drops Below 1.3750 Amid Middle East Ceasefire and Fed Dovishness

USD/CAD edged lower to 1.3720 during the early Asian trading session on Thursday, as investors reacted to a ceasefire agreement between Israel and Iran and dovish remarks from Federal Reserve Chair Jerome Powell. The Greenback remained under pressure, allowing the Canadian Dollar to gain modest ground.

Middle East Optimism Weakens USD

Market optimism over a Middle East ceasefire has eased geopolitical tensions, reducing demand for traditional safe-haven assets like the US Dollar (USD). Traders responded by shifting to higher-yielding or risk-sensitive assets, including the Canadian Dollar (CAD).

Despite the apparent de-escalation, markets remain sensitive. Any provocation or breakdown in talks could reignite safe-haven flows, temporarily reversing USD/CAD’s current bearish momentum.

Fed's Powell Warns of Tariff-Driven Inflation Risks

Federal Reserve Chairman Jerome Powell acknowledged inflation concerns, noting the central bank must monitor the risk of persistent inflation, especially due to tariffs. While Powell refrained from committing to future rate hikes, his tone was cautious and slightly dovish, adding downward pressure to the US Dollar.

The dovish interpretation from traders has led to growing expectations that the Fed may pause further tightening, favoring risk-sensitive currencies like the CAD.

Trump’s Iran Comments Add Geopolitical Uncertainty

Former President Donald Trump declared that “the war is over” after recent US airstrikes on Iran but also hinted that conflict could resume if diplomatic efforts falter. He confirmed the US would enter talks with Iran next week, but remained skeptical of a long-term solution.

These mixed signals inject a degree of geopolitical risk, which could quickly shift sentiment and impact USD demand.

USD/CAD Technical Analysis

• Current Price: 1.3720
• Immediate Resistance: 1.3750
• Next Resistance: 1.3790
• Support Levels: 1.3700 and 1.3665

The pair’s decline below 1.3750 suggests a near-term bearish outlook. A break below 1.3700 could accelerate downside momentum toward 1.3665. However, renewed geopolitical tension could spark a reversal.

Outlook: Cautious Sentiment with CAD in Control

Traders are watching multiple risk factors:

• US-Iran talks and ceasefire stability
• Fed's inflation guidance and interest rate trajectory
• Canadian economic data and oil price trends

If Middle East tensions ease and the Fed maintains its dovish stance, USD/CAD could remain under pressure, favoring continued CAD strength in the short term.

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