Currencies shift as Hormuz standoff lifts oil and splits forex markets

Currency markets moved sharply on Tuesday as an ongoing standoff over the Strait of Hormuz continued to drive oil prices higher, strengthening commodity-linked currencies while pressuring those of energy importers. The Canadian dollar held near two-month highs against both the US dollar and the euro, the Indian rupee weakened under RBI watch, and the British pound hovered around $1.35 as traders awaited Wednesday's US inflation data.

Canadian Dollar Gains on Oil Tailwinds

The USD/CAD pair traded around 1.3935 on Tuesday, near its lowest level in two months, as West Texas Intermediate crude held above $83 per barrel. The EUR/CAD pair fell for a fifth consecutive session, trading around 1.6080, as the eurozone faced the dual pressure of higher energy-import costs and rekindled inflation fears. Deutsche Bank noted that market pricing for a European Central Bank rate hike in September had risen to a 90% probability, up from 85% the prior Friday.fxstreet+1

Iran has explicitly ruled out further negotiations with President Donald Trump, with Majid Shakeri, an adviser to Iran's parliament speaker, stating: "Trump will not reach an agreement with us. We will accompany him until his term ends". Iran's Supreme National Security Council issued six new conditions over the weekend for reopening the strait, including the lifting of sanctions and compensation for what it called two "imposed wars".tmgm+1

Rupee Slips as RBI Intervenes

The Indian rupee slipped to a near two-week low on Tuesday, trading around 95.40 per dollar, as elevated crude prices pressured Asia's third-largest economy. According to Reuters, the Reserve Bank of India continued its pattern of intervention in the foreign exchange market to prevent sharper depreciation. The rupee had closed at 95.30 per dollar on Monday, with traders expecting further central bank support.reuters+3

Diplomatic Signals Temper Oil Rally

Some pressure on oil eased after Pakistan said on Tuesday that the United States and Iran were close to "some sort" of deal, while fellow mediator Qatar said talks on managing the strait were at an advanced stage. However, Iran's top security official Mohsen Rezaei countered that the Strait of Hormuz would remain closed unless Washington meets Tehran's conditions. The US dollar index held steady near 99.81, supported by oil-driven inflation expectations ahead of Wednesday's Consumer Price Index report. The British pound traded near $1.35 against the dollar, little changed as traders weighed Middle East risks against upcoming data.mtfxgroup+4

Analysts at Commerzbank warned that the Canadian dollar's strength may prove fragile, noting that the US president "has announced new tariffs of 50% on certain Canadian goods if no agreement is reached by August 19th".tmgm