USD/CAD strengthens as Middle East tensions support Greenback

• The USD/CAD rises as monetary policy divergence and safe-haven demand support the USD's strength.
• The Strait of Hormuz remains a concern for Oil markets but fails to support the Canadian Dollar on Monday.
• USD/CAD is approaching the 50-day Simple Moving Average, located below the 1.3800 psychological level.

USD/CAD is trading stronger on Monday, holding around 1.3780 after touching an intraday high of 1.3803 earlier in the session.

The pair is on track for its fifth straight day of gains, driven by a mix of safe-haven flows into the US Dollar and concerns over Canada's domestic economic outlook.

Risk sentiment remains fragile after the United States launched airstrikes on three Iranian nuclear sites over the weekend. In a televised statement, President Donald Trump said the strikes were a "very successful attack" and warned of further military action if Iran escalates. The strikes heightened tensions across the Middle East, particularly over the Strait of Hormuz, a key Oil shipping route.

This comes after last week's renewed safe-haven demand for the US Dollar, sparked by the US airstrikes on Iranian nuclear sites, which injected uncertainty into global markets and lifted the Greenback across the board.

The resulting risk-off tone has kept the US Dollar supported, even as oil prices climb. Risk-sensitive assets have seen limited upside, while safe-haven flows have driven strength in the USD against major peers.

Dovish BoC outlook provides additional support for USD/CAD

Meanwhile, Canadian economic fundamentals have provided little support for the loonie. Friday's preliminary May retail sales data from Statistics Canada showed a sharper-than-expected 1.1% contraction, following April's modest 0.3% gain. This underscores weakening consumer demand and adds weight to the case for further interest rate cuts by the Bank of Canada.

Technical analysis: USD/CAD nears resistance at the 50-day SMA 

From a technical standpoint, USD/CAD faces immediate resistance at the 50-day Simple Moving Average (SMA) near 1.3803.

A sustained break above that level could pave the way for a test of the November 2024 low at 1.3823. On the downside, initial support lies at the 20-day SMA at 1.3704, followed by a more significant floor near 1.3640. The daily Relative Strength Index (RSI) is holding just above 55, suggesting neutral-to-slightly bullish momentum in the short term.