USD/CAD softens below 1.3750 on Middle East optimism

• USD/CAD posts modest losses near 1.3720 in Thursday's early Asian session.
• Traders assess the Israel-Iran ceasefire and the Fed's cautious stance. 
• Fed's Powell said central bank needs to manage against the risk that tariff inflation proves persistent.

The USD/CAD pair trades with mild losses around 1.3720 during the early Asian session on Thursday. The Greenback remains weak as traders continue to assess the ceasefire in the Middle East and the cautious tone from Federal Reserve (Fed) Chair Jerome Powell.

US President Donald Trump said the United States (US) would hold a meeting with Iran next week but questioned the necessity for a diplomatic solution on Iran's nuclear program, citing the damage that American bombing had done to key sites, per Bloomberg. 

Trump noted that the conflict was effectively "over" after the US bombing mission, though he also warned it could maybe start soon. Traders will keep an eye on the developments surrounding US-Iran talks and Middle East conflicts. However, any signs of escalation could boost the safe-haven flows, supporting the US Dollar (USD). 

Fed Chair Jerome Powell said on Wednesday that Trump's tariff policies may well just cause a one-time jump in prices, but the risk that they could cause more persistent inflation is large enough for the Fed to be careful in considering further rate cuts. Fed officials still expect to reduce interest rates this year, but the timing remains uncertain as policymakers wait on coming trade deadlines and hope for more certainty about the scope of the tariffs.

Meanwhile, a fall in Crude Oil prices could drag the commodity-linked Loonie lower and cap the downside for the pair. It's worth noting that Canada is the largest oil exporter to the US, and lower crude oil prices tend to have a negative impact on the CAD value.