USD: Macro resilience amid rising tensions
The United States and Iran recently experienced their most severe military clash since an early April ceasefire went into effect. Iran targeted key US bases in Bahrain and Kuwait after American forces struck an empty Iranian-bound oil tanker. These overnight missile and drone attacks caught neighboring nations completely in the crossfire. Meanwhile, interim peace negotiations remain stalled over complex issues like uranium stockpiles and shipping rights.
This sudden escalation immediately rattled financial markets and sent energy prices soaring. Brent crude oil jumped 1.9% to $97 a barrel, fueling fresh inflation fears among investors. Consequently, the stock market took a hit, with the S&P 500 dropping from its all-time high with the Dow Jones losing as well. Rising bond yields also pressured stocks as markets worry that elevated energy costs could slow down economic growth.
Despite these fresh tensions, the domestic labor market continues to show surprising and sustained strength. Private-sector employers added 122,000 jobs in May, marking the largest employment increase since January 2025. The education and health services sectors led this broad-based hiring wave by adding 57,000 new positions. This steady job growth suggests the broader economy maintains solid momentum even as energy prices actively climb.
Service-sector activity also expanded, with the ISM services index reaching a healthy three-month high of 54.5 in May. However, business expenses are mounting rapidly, pushing the ISM prices-paid gauge to 71.3 and forcing companies to pass costs onto shoppers. The Federal Reserve recently noted in the latest Beige Book release, that Middle East tensions are the primary driver of these current inflationary pressures. As higher fuel costs spill over into everyday goods, policymakers are carefully monitoring the situation to determine if tighter monetary policy is necessary.
As the newly released Federal Reserve Beige Book confirms that these persistent inflationary pressures are spreading across most economic districts, and oil prices are bouncing, yields rose across the US Treasury yield curve in Wednesday afternoon trading as investors brace for higher interest rates. This hawkish market sentiment, with a combination of rising yields and geopolitical uncertainty ultimately supports the greenback short-term.
CAD: Lowest since early April
The Canadian dollar recently dropped against its American counterpart after renewed military tensions in Iran pushed oil prices higher. Although rising crude prices typically support the commodity-linked currency, domestic weakness is overshadowing these energy gains. Canada officially entered a technical recession as first-quarter gross domestic product contracted by an annualized 0.1%. This disappointing economic data followed a revised 1.0% annualized contraction in the previous quarter, missing market expectations by a wide margin.
While improved terms of trade from higher oil exports provided a mild cushion, they failed to overcome Canada’s weak economic momentum. Specifically, business capital investment dropped 0.7% in the first quarter, marking its fifth consecutive quarterly decline. The Bank of Canada notes that ongoing trade uncertainty is actively delaying corporate expansion plans and lowering the country’s long-term growth path. Although this mild contraction lacks the depth of a severe crisis, it officially forces the country to confront a technical recession.
These deepening recessionary pressures strongly support the case for the Bank of Canada to keep interest rates on hold throughout the year. At the same time, a wide interest rate spread near 120 basis points continues to favor the greenback over the Loonie. The underlying economic divergence keeps the domestic currency highly vulnerable against a dominant US dollar, and its weakness will be tested tomorrow with the latest labour market data for the month of May.
From a technical perspective, the USD/CAD currency pair climbed to its highest level since early April. The pair is holding firmly above its key 200-day moving average at 1.3811. If the market successfully clears the immediate resistance near 1.390, the path clears toward the year-to-date high of 1.3967.
MXN: Mexican Peso weakens under Middle East tensions
The Mexican peso slightly weakened alongside its emerging-market peers as global oil prices climb. This surge stems directly from the recent escalation of hostilities between the United States and Iran, which are stoking severe inflation concerns and dampening hopes for an imminent peace accord. As global risk appetite fades, emerging-market stocks are also retreating from their recent record highs.
Adding to this market pressure, new United States tariff proposals are heavily weighing on investor sentiment. The proposed plan introduces a 10 percent minimum levy on 60 trading partners, threatening regional trade stability. To counteract this looming uncertainty, Mexican Economy Minister Marcelo Ebrard recently reiterated strong support to extend the USMCA agreement for 16 years.
From a technical perspective, the USD/MXN is currently trading near the 17.33 mark. The price action has been holding just above its 20-day simple moving average of 17.29. Meanwhile, heavier overhead resistance sits where the 50-day and 100-day moving averages converge near 17.43 and 17.44. If these geopolitical and trade pressures intensify, the currency pair could ultimately target its key 200-day moving average at 17.87.
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Calendar: June 01 – 05
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
