• USD/CAD extends losses for a third day as easing geopolitical tensions weigh on the US Dollar.
• A temporary two-week ceasefire between the US and Iran lifts market sentiment.
• Focus shifts to key data, including Fed minutes, US PCE, CPI, and Canada jobs report.

USD/CAD trades with a downside bias on Wednesday, as the US Dollar (USD) comes under broad selling pressure following a temporary ceasefire agreement between the United States and Iran. At the time of writing, the pair is trading around 1.3847, extending losses for the third straight day.

US President Donald Trump announced on Truth Social that he had agreed to suspend attacks on Iran for a period of two weeks, provided that Tehran ensures the “complete, immediate, and safe opening of the Strait of Hormuz.” Meanwhile, Tehran has agreed that safe transit through the Strait can be maintained during this period in coordination with Iranian armed forces.

In reaction, the US Dollar slid to one-month lows as traders unwound long positions after the ceasefire reduced immediate geopolitical risks. The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, is trading around 98.80, down nearly 0.85% on the day.

However, uncertainty remains elevated as reports of airstrikes between Israel and Lebanon continue to emerge. According to Iran’s Tasnim News Agency, citing an unnamed source, Tehran has warned it could withdraw from the ceasefire agreement if attacks on Lebanon persist.

In a separate development, Iran’s Islamic Revolutionary Guard Corps (IRGC) cautioned that any entry of foreign aircraft into its airspace would be considered a breach of the ceasefire.

Against this backdrop, further downside in the USD/CAD could remain limited as lingering geopolitical risks and uncertainty around the durability of the ceasefire keep markets cautious.

On the Canadian Dollar side, the Loonie shows a muted reaction to Oil price moves, as broader US Dollar dynamics continue to dominate price action.

On the monetary policy front, the earlier surge in Oil prices raised concerns about inflation, reinforcing expectations that the Federal Reserve (Fed) and the Bank of Canada (BoC) may keep interest rates higher for longer or even raise rates. However, the recent pullback in Crude is now easing some of those pressures, prompting markets to reassess the policy outlook.

Looking ahead, attention will also turn to upcoming economic data and central bank signals, with the Fed’s meeting minutes due later on Wednesday, followed by US PCE on Thursday and US CPI and Canada’s jobs data on Friday.