Canadian Dollar softens even as rising oil prices provide underlying support.

USD/CAD edges higher as risk-off sentiment leaves the Canadian Dollar unable to benefit from stronger crude oil prices. WTI crude extends gains after Iran launched unsuccessful ballistic missile attacks on Kuwait and Bahrain, heightening concerns over Middle East supply disruptions. Meanwhile, the US Dollar strengthens as fears surrounding a potential Strait of Hormuz closure fuel inflation worries and reinforce expectations that the Fed could keep interest rates higher for longer.

USD/CAD trades modestly higher around 1.3850 during Wednesday’s Asian session after posting slight losses in the previous session. The commodity-linked Canadian Dollar (CAD) remains subdued despite a continued rise in crude oil prices, as heightened market risk aversion keeps traders cautious and limits demand for risk-sensitive currencies.

West Texas Intermediate (WTI) crude extends its rally for a third straight session, hovering near $92.60 per barrel at the time of writing. Oil prices surged following renewed tensions in the Middle East after Iran launched ballistic missiles toward Kuwait and Bahrain. According to reports, the US Central Command (CENTCOM) intercepted the missile and drone attacks while carrying out self-defense strikes on Iran’s Qeshm Island.

Concerns over a prolonged closure of the Strait of Hormuz have intensified fears of wider energy supply disruptions, potentially fueling global inflation pressures. This environment continues to strengthen expectations that the Federal Reserve (Fed) will keep interest rates elevated for longer, providing additional support to the US Dollar (USD). The higher-for-longer rate outlook is also backed by resilient US economic data, with the May 2026 ISM Manufacturing PMI rising to 54.0 from 52.7 and exceeding market forecasts to mark the strongest expansion in factory activity since May 2022.

Further signs of economic resilience emerged from the labor market, as April JOLTS job openings climbed to a near two-year high of 7.61 million while layoffs declined. With both manufacturing and employment indicators remaining firm, investors are now turning their focus to Friday’s Nonfarm Payrolls report for further insight into the future direction of Fed monetary policy.