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• The Canadian dollar found more gains off the back of US dollar selling pressure on Friday.
• The lack of meaningful Canadian economic data meant that gains in the loonie were at the mercy of market flows.
• Middle East geopolitical tensions have moved back to the forefront. This kept risk appetite under wraps but boosted crude oil prices.

The Canadian dollar caught yet another bid on Friday, as it climbed to new eight-month highs while the US dollar held in place and crude oil prices surged. Geopolitical tensions have returned to the forefront after Israel launched a surprise attack on Iranian nuclear facilities late Thursday, pushing investors off their risk-on perch, albeit slightly. US consumer sentiment figures rebounded strongly last month, further limiting downside momentum in general investor sentiment.

Meaningful Canadian data remains limited on the economic docket through the next couple of weeks. Loonie traders will likely be cautious heading into key Canadian inflation figures due at the end of the month; however, the data vacuum between now and then leaves the loonie entirely at the mercy of how markets feel about the greenback and Middle East tensions from one day to the next.

Market Movers: The Canadian Dollar Stepped Higher, Bolstered by Crude Oil

• The Canadian dollar seemingly caught a boost from knock-on market effects, as it was pushed higher by increased crude oil prices following Israel’s airstrike on Iranian nuclear facilities.
• The ripple effects sent the USD/CAD currency pair back below the 1.3600 handle for the first time since last October. This kept the greenback pinned to eight-month lows against the loonie.
• University of Michigan US Consumer Sentiment Index figures for May rebounded stronger than median market forecasts predicted.
• Consumer perception of economic factors, especially negative ones, routinely overshoot reality, and frequently run out of steam before negative effects can truly be felt in the broader economy. Generalized negative perceptions of the Trump administration’s tariff “policies” are likely no different.
• Another Federal Reserve rate call is due next week, but is widely expected to result in another hold on interest rates as policymakers at the Fed remain leery of downside shocks from Donald Trump’s whiplash tariffs.
• Another rate hold is likely to draw more criticism from the White House, but markets have already priced in the next rate cut in September.

Canadian Dollar Forecast

The Canadian dollar continued to gain ground against the greenback, due more to external factors rather than any intrinsic strength. The USD/CAD pair continued to run on the low side of declining trendlines from multi-decade highs posted at the start of the year, though one-sided momentum could be poised for a correction move with technical oscillators buried deep in oversold territory.

USD/CAD Daily Chart

(Click on image to enlarge) 

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