• The Canadian Dollar outperforms the US Dollar as Oil prices rally sharply.
• Donald Trump says any agreement with Iran is now off the table and warns of fresh US strikes.
• Markets await the Federal Reserve Minutes and Canada's employment report.

USD/CAD trades around 1.4190 at the time of writing on Wednesday, down 0.10% on the day, as the Canadian Dollar (CAD) benefits from a sharp rebound in Oil prices fueled by renewed geopolitical tensions in the Middle East.

United States (US) President Donald Trump said that the memorandum of understanding aimed at ending the conflict with Iran is now "over" and that he no longer wants to negotiate with Tehran. He also stated that the United States could launch new strikes against Iran as early as Wednesday night, raising the possibility of targeting strategic infrastructure, including the country's electricity grid, water treatment facilities and Kharg Island, Iran's main Oil export terminal.

These remarks have reignited concerns about global Oil supply disruptions, with the Strait of Hormuz remaining at the center of investors' attention. The strategic waterway handles around one-fifth of the world's Oil supply, meaning any potential disruption continues to support Crude prices and, in turn, commodity-linked currencies such as the Canadian Dollar.

The Canadian Dollar (CAD) is benefiting directly from the rise in Oil prices, which improves the outlook for Canada's largest export sector. Meanwhile, the NBC noted that Canada's merchandise trade surplus reached its highest level in four years in May, driven by record exports, although the bank warned that lower energy prices following the recent Oil price correction could narrow the surplus in the coming months. NBC also highlighted that ongoing disruptions in the Strait of Hormuz continue to pose risks to global supply chains.

According to Scotiabank analysts, the Canadian Dollar has also held up well despite the volatility triggered by the Iran conflict. The bank noted that sentiment toward the Canadian currency has improved gradually, while the declining premium for upside US Dollar (USD) protection suggests the recent weakness in the CAD may be coming to an end.

Investors are now awaiting the release of the June Federal Open Market Committee (FOMC) Minutes, which could provide fresh clues about the monetary policy outlook of the Federal Reserve (Fed). In Canada, attention will then shift to Friday's June employment report, a key release that could shape expectations for the Bank of Canada's (BoC) next policy decision.