• USD/CAD edges higher toward 1.4230 amid growing expectations of additional Federal Reserve tightening.
• Geopolitical tensions surrounding Iran continue to support safe-haven demand and the US Dollar.
• Investors await the US PCE inflation report for fresh clues on the Federal Reserve’s policy outlook.

USD/CAD trades higher around 1.4230 on Wednesday after earlier reaching a more-than-one-year high at 1.4239. The Canadian Dollar (CAD) remains weighed down by lower Oil prices, while the fundamental backdrop is broadly supportive of the US Dollar (USD), as markets increase their bets on another Federal Reserve (Fed) rate hike this year.

Geopolitical tensions also remain in focus. Iranian President Masoud Pezeshkian stated that Tehran’s ballistic missile program will not be part of negotiations with the United States (US), while US President Donald Trump disputed Iran’s claims regarding inspections by the International Atomic Energy Agency. The uncertainty surrounding a potential agreement between Washington and Tehran continues to underpin demand for the Greenback.

The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, trades around 101.60, near its highest level in more than a year. Money markets are now pricing in nearly a 86% chance of a Fed rate hike by December, up from around 61% before last week’s Federal Open Market Committee (FOMC) meeting. The central bank’s updated projections also showed that a majority of policymakers still see scope for higher rates this year.

Investor attention now turns to Thursday’s release of the US Personal Consumption Expenditures (PCE) Price Index for May. The report, the Fed’s preferred inflation gauge, could provide fresh guidance on the near-term monetary policy outlook.

In Canada, Bank of Canada (BoC) Governor Tiff Macklem said on Tuesday that global financial flow imbalances, driven in part by China’s export surplus and the United States’ reliance on foreign capital, could increase financial stability risks. Meanwhile, Amo Sahota, director at Klarity FX, argued that the Canadian Dollar has remained under pressure in recent weeks due to widening yield differentials in favor of the US Dollar, slowing economic growth and ongoing trade uncertainty.