• USD/CAD extends its decline and trades around 1.3610, near six-week lows.
• Optimism over easing Middle East tensions weighs on safe-haven demand.
• Rising Oil prices support the Canadian Dollar ahead of the BoC and Fed decisions.

USD/CAD declines for a second consecutive day on Monday, trading around 1.3610 at the time of writing, down 0.44% on the day and testing its lowest levels in six weeks. The pair remains under selling pressure, mainly driven by a broad weakening of the US Dollar (USD) amid a relative improvement in market sentiment.

Markets are reacting to reports suggesting a potential resumption of dialogue between the United States (US) and Iran. According to Axios, citing sources familiar with the matter, Tehran has submitted a new proposal aimed at ending the conflict and reopening the Strait of Hormuz, a key route for global Oil supply. Although negotiations remain uncertain, these developments are fostering moderate optimism, reducing demand for the Greenback as a safe-haven asset.

At the same time, the Canadian Dollar (CAD) is supported by elevated Oil prices. The barrel of West Texas Intermediate (WTI) trades around $94.65 at the time of press, up 1.32% for the day, underpinned by ongoing concerns over global supply after weeks of disruption in the Strait of Hormuz. Canada, as the largest Oil exporter to the United States, sees its currency strengthened by this dynamic.

However, price movements remain sensitive to geopolitical developments. Hopes of a potential agreement could eventually weigh on Crude prices by easing supply risks, which in turn could limit support for the Canadian Dollar.

Investors now turn their attention to Wednesday’s monetary policy decisions. The Bank of Canada (BoC) is expected to keep rates unchanged, maintaining a cautious stance amid geopolitical uncertainty and persistent inflation pressures. A few hours later, the Federal Reserve (Fed) is also likely to hold rates steady, as markets broadly anticipate a prolonged period of policy stability.

Finally, this Fed meeting carries additional significance as it could be the last chaired by Jerome Powell as head of the central bank, amid uncertainty surrounding the Fed’s future stance. This situation may contribute to increased volatility in the US Dollar in the coming days.