USD/CAD Falls Below 1.3750 Amid Easing Middle East Tensions and Powell’s Dovish Stance

USD/CAD Dips Below 1.3750 as Middle East Tensions Ease and Powell Remains Cautious

The USD/CAD currency pair posted modest losses around 1.3725 during early Wednesday's Asian session, pressured by an improved risk sentiment following easing Middle East tensions and dovish remarks from Federal Reserve Chair Jerome Powell.

Middle East Ceasefire Boosts Risk Appetite

Markets reacted positively to news of a fragile ceasefire between Iran and Israel, easing geopolitical tensions that previously supported the safe-haven US Dollar. According to reports, four rounds of Iranian strikes on Israeli-held areas have ceased, with former US President Donald Trump confirming the truce and urging both nations to maintain peace.

This shift to risk-on sentiment is placing near-term pressure on the USD, supporting commodity-linked currencies like the Canadian Dollar (CAD).

Fed’s Powell Reiterates “Wait and See” Approach

In a key development for monetary policy watchers, Fed Chair Powell reiterated that the central bank is in no rush to adjust interest rates. His cautious tone contrasts with recent hawkish-leaning comments from Fed Governors Waller and Bowman, who signaled openness to cutting rates as early as July.

However, money markets continue to price in two rate cuts by the end of 2025, with a September cut seen as more probable than one in July. Powell’s testimony later today is expected to offer more clarity on the Federal Reserve’s forward guidance.

Canada Inflation Holds Steady

In Canada, CPI inflation remained unchanged at 1.7% YoY in May, matching market expectations. The stable inflation data adds moderate support to the CAD and contributes to the USD/CAD’s current downside.

What’s Next for USD/CAD?

With Powell’s testimony looming and geopolitical risks easing, USD/CAD could remain under pressure, especially if risk sentiment continues to improve and rate cut bets intensify. Watch for further commentary from Fed officials and developments in the Middle East for directional cues.

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• What Canada’s Steady Inflation Means for the Loonie
• How Geopolitical Risk Impacts Forex Markets