• USD/CAD rallies above 1.3700 and is set to test three-week highs at the 1.3715 area.
• Growing geopolitical risks and investors' cautiousness ahead of the US CPI release are boosting the USD.
• Higher Oil prices are cushioning the Canadian Dollar's reversal.

The Canadian Dollar (CAD) accelerates its decline against the  US Dollar (USD) on Tuesday, with the USD/CAD pair rallying above 1.3700 and set to test its highest levels in nearly a month, at 1.3714. A sour market mood amid saber-rattling in the Middle East and investors’ cautiousness ahead of the US Consumer Price Index (CPI) release are buoying the USD across the board.

Traders are on edge about the possibility of the resumption of hostilities between the US and Iran, which would complicate the reopening of the Strait of Hormuz even further.

US President Donald Trump affirmed earlier on Tuesday that the ceasefire is on “life support,” and CNN reported comments from the president’s aides suggesting that the resumption of major combat operations is back on the table. CNN also stated that the peace process is unlikely to make significant progress ahead of the meeting between Trump and Chinese President Xi Jinping later this week.

Later on the day, April’s US Consumer Price Index is likely to provide some distraction from geopolitics. Consumer inflation is expected to have surged to a 3.7% year-on-year rate, from 3.3% in March, amid the energy shock from Iran’s war. The core CPI is seen advancing at a more moderate pace of 2.7% YoY from 2.6% in March. 

The Canadian Dollar, on the other hand, is drawing some support from the higher Oil prices, in the absence of key Canadian economic data. Oil is Canada's main export, and the recent jump in Crude prices, with the WTI barrel trading above $98.00, hints at growing trade revenues and is keeping the Loonie from falling further.