Anna 
The USD/CAD pair extended its gains for the fourth consecutive session, reaching higher levels around 1.3480 during the early European trading session on Tuesday. The positive market sentiment has given way to risk aversion, with the intensifying geopolitical situation taking center stage. Reports of missile launches by the Islamic Revolutionary Guard Corps (IRGC) targeting spy hubs and anti-Iran terror group gatherings in northern Iraq, near the U.S. consulate in Erbil, have contributed to the shift.
In tandem with these events, West Texas Intermediate (WTI) crude oil prices struggled to recover recent losses, hovering near $72.50 per barrel at the time of writing. The reported IRGC attack coincided with concerns over an Israeli offensive in the Gaza Strip and an escalation by Iran-backed Houthi rebels in the Red Sea, lending support to crude prices. This development may have played a role in limiting losses for the Canadian dollar (CAD) against the U.S. dollar (USD).
The Bank of Canada’s (BoC) business outlook survey, released on Monday, revealed that weak demand and new competitive pressures are gradually exerting downward pressure on output price growth. While worries about labor shortages are diminishing, wage growth is anticipated to ease only gradually. This gradual easing has led businesses to expect inflation to remain above the Bank of Canada’s 2.0% target for an extended period.
In upcoming economic events, Statistics Canada is set to release the Consumer Price Index (CPI) for December. Anticipated annual growth is 3.4%, slightly surpassing November’s 3.1%. On a monthly basis, the index is expected to decrease by 0.3% following a 0.1% increase last month. These figures will offer insights into the country’s inflation trends, potentially influencing market sentiment and the Bank of Canada’s policy considerations.
The U.S. Dollar Index (DXY) found upside support amid the prevailing risk-off sentiment, further strengthened by positive movements in U.S. Treasury yields. Market participants are closely monitoring the U.S. New York Empire State Manufacturing Index for January, alongside a scheduled speech by Federal Reserve official Christopher J. Waller later on Tuesday, both of which could have significant implications for market dynamics.
