Canadian Dollar climbs to new monthly highs on elevated Oil prices and weaker US Dollar

• USD/CAD slips below 1.4050 to monthly lows, leaving it nearly 1.8% below last week's peaks.
• Brent Crude reaches five-month highs, fuelling a rally in the Canadian Dollar.
• With investors preparing for a Fed pause next week, the US Dollar stays under pressure.

Oil prices have climbed to their highest level since May, helping the Canadian Dollar (CAD) advance for a fourth consecutive day on Tuesday. Meanwhile, fading expectations of imminent Federal Reserve (Fed) rate increases are weighing on the US Dollar (USD). USD/CAD has fallen further below 1.4050, putting the pair nearly 1.8% below last week’s highs.

This week’s rise in Crude Oil has given the Canadian Dollar further support. Although US President Donald Trump has decided to waive sanctions on Russia, the move has not delivered the intended relief to Crude markets. Increasing attacks on vessels trying to pass through the Strait of Hormuz are placing additional pressure on supplies from Gulf countries.

Iran reports attacks on two vessels in Hormuz

Speaking to the local Tasnim News agency earlier on Tuesday, Iran’s Revolutionary Guards Navy said mines had set two tankers ablaze and halted them in the southern part of the Strait of Hormuz.

In a recent escalation of its rhetoric towards the United States and Israel, the Islamic Republic has warned the allies not to resume attacks on Iran. It has also threatened to close the Strait of Hormuz completely and impose further blockades in the Strait of Bab el-Mandeb and the Suez Canal.

Although tensions in the Middle East are dampening investors’ risk appetite, they continue to support the Canadian Dollar. Oil is Canada’s principal export, and these prices provide a substantial boost to the country’s foreign revenues.

By contrast, the US Dollar continues to struggle as markets adjust to the prospect that the Federal Reserve (Fed) will leave interest rates unchanged next week. According to the FedWatch Tool, futures markets now put the probability of no change at the 28-29 October monetary policy meeting at more than 80%, compared with less than 50% a month earlier.