Canadian Dollar gains as Oil prices rise on Strait of Hormuz closure

USD/CAD loses its recent gains registered in the previous session, trading around 1.3580 during the Asian hours on Thursday. The pair depreciates as the commodity-linked Canadian Dollar (CAD) gained support after the effective closure of the Strait of Hormuz highlighted Canada as a reliable energy supplier to the United States amid the Iran conflict.

West Texas Intermediate (WTI) oil price extends its gains for the third successive session, trading around $91.60 at the time of writing. Oil prices climb as the prospect of a protracted Iran war overshadowed a coordinated release of oil reserves by major economies. Markets also viewed the emergency oil release as insufficient even after the IEA agreed to its largest-ever release of 400 million barrels of oil.

Iran’s Islamic Revolutionary Guard Corps (IRGC) said it launched a joint operation with Lebanon's Hezbollah against targets in Israel, Jordan, and Saudi Arabia. Bahrain's Interior Ministry said on Thursday that Iran has targeted fuel tanks at a facility in Muharraq Governorate, one of Bahrain’s four administrative regions.

However, the downside of the USD/CAD pair could be restrained as the US Dollar (USD) remains stronger, as surging energy prices heightened inflationary risks and reduced the likelihood of Federal Reserve (Fed) interest rate cuts.

The February US Consumer Price Index (CPI) released on Wednesday showed inflation rising 0.3% month-over-month (MoM) and 2.4% year-over-year (YoY), largely in line with market expectations. Core CPI, which excludes food and energy, increased 0.2% MoM and 2.5% YoY.

The relatively steady inflation figures reduced fears of a sudden surge in price pressures and reinforced expectations that the Federal Reserve may keep interest rates steady in the near term. Analysts note that the latest CPI report does not yet fully reflect the recent surge in oil prices caused by geopolitical developments. US Personal Consumption Expenditures (PCE) will be eyed on Friday.