USD/CAD remains capped below 1.3660 lows as higher crude prices support the Loonie

• Canadian Dollar reversals remain limited with Oil prices above $70.
• The US Dollar has given away most of the gains taken after Israel's attack on Iran.
• USD/CAD remains unable to put a significant distance from year-to-date lows at 3.3590.

The US Dollar rallied on early trade on Friday, boosted by the risk-averse reaction to Israel's attack on Iran, but was capped at 1.3660 before returning to levels close to 1.3600 as the escalating Oil prices have pushed the Canadian Dollar higher.

Crude prices have surged on concerns that escalating tensions between Iran and Israel might disrupt Oil traffic through the strategic Strait of Hormuz, leading to significant restrictions in global supply.

Higher Oil prices underpin the CAD 

The US benchmark WTI Oil surged more than 10% following the first Israeli strike on Iran, before pulling back gradually, but it still remains at two-week highs above the psychological $70 level, in track for an 11% weekly appreciation.

Oil is Canada's main export, and higher crude prices are likely to keep the Canadian Dollar underpinned. The US Dollar rally has failed to alter the broader USD/CAD bearish trend, which has taken the pair to explore year-to-date lows below 0.3600 earlier this week.

Macroeconomic data has not been particularly supportive for the US Dollar this week. Consumer prices were stronger than expected in a trend that was confirmed by producer prices on Thursday, and fed hopes of Fed easing in September. The US Dollar retreated sharply following the data.