USD/CAD holds gains above 1.3700 due to escalating Israel-Iran conflict

• USD/CAD appreciates as the US Dollar receives support from increased risk aversion.
• The weakening of the commodity-linked CAD could be restrained amid higher crude Oil prices.
• WTI price hits five-month highs as supply concerns heighten after Israel attacked Iran's Arak heavy water reactor.

USD/CAD continues to gain ground for the third consecutive day, trading around 1.3710 during the European hours on Thursday. The pair gains ground as the US Dollar (USD) draws upward support from increased safe-haven demand, driven by escalating geopolitical tensions in the Middle East.

US President Donald Trump criticized Iran, stating that they "made a mistake", responding to the Supreme Leader Ayatollah Ali Khamenei's declaration that "the Iranian nation will not surrender" and warned of "irreparable damage" if the United States (US) directly joins the Israel-Iran conflict.

The US Dollar Index (DXY), which measures the value of the Greenback against six major currencies, is trading higher at around 99.10 at the time of writing. The US Dollar receives support from the cautious remarks from the Federal Reserve (Fed) Chair Jerome Powell, who signaled, in a post-meeting press conference on Wednesday, that inflation remains somewhat above goal and could rise in the future. Powell highlighted the importance of the current policy stance that leaves the central bank well-positioned. He cautioned that ongoing policy uncertainty will keep the Fed in a rate-hold stance.

Fed announced the decision to keep the policy rate steady at the 4.25%-4.50% range at its June meeting, as widely expected. However, the Federal Open Market Committee (FOMC) still sees around 50 basis points of interest rate cuts through the end of 2025.

The upside of the USD/CAD pair could be restrained as the commodity-linked CAD could receive support from the higher crude Oil prices. This is important to note that Canada is the largest crude exporter to the United States, the world's largest Oil consumer.

West Texas Intermediate (WTI) Oil price appreciates more than 1%, trading around $73.90 per barrel and hitting fresh five-month highs. Crude Oil prices rise due to renewed concerns over supply disruptions after reports that Israel struck Iran's Arak heavy water reactor early Thursday.