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USD / CAD - Canadian dollar testing approaching resistance zone

- Oil prices climb on rising Middle East tensions.

- Wednesday’s Fed meeting in focus.

- US dollar is trading defensively despite negative risk sentiment.

USDCAD: open 1.3434-38, overnight range 1.3429-1.3463, close 1.3458, WTI $78.12, Gold, $2027.62

The Canadian is eking out gains in a risk-averse environment, thanks to higher commodity prices, particularly gold and oil.

West Texas Intermediate (WTI) extended last week's gains and rose to $79.28/barrel in Asia before sliding down to $77.72/b at the NY open. The gains are due to supply disruption concerns, which became more elevated over the weekend following reports of more missile attacks on Red Sea shipping and a drone strike that killed three US soldiers at a base in Jordan.

Republican politicians are demanding that President Biden retaliate against Iran because the Iranian government is backing the numerous terrorist groups wreaking havoc in the Middle East. Analysts are also concerned about the US and Western governments imposing a new round of oil export sanctions on Iran, which would also drive up prices.

The Canadian dollar is also seeing demand on the back of widespread selling of the greenback ahead of Wednesday's FOMC meeting. There is talk that the Fed may signal its dovish bias by dropping the reference that "rates could rise" in the monetary policy statement.

EUR/USD traded negatively in a 1.0808-1.0850 range, mainly due to diverging Eurozone and US growth concerns. Those concerns were exacerbated by news that French farmers are planning to blockade Paris. The timing of ECB rate cuts is another disruption. Governing Council members are not on the same page with the timing of rate cuts, although they all seem to think that the next move is lower.
National Bank of France Governor François Villeroy said, "Rates could be cut at any time," while Slovakia National Bank Governor Peter Kazimir said, "I will not jump to premature conclusions about the timing."

GBP/USD drifted higher in a 1.2691-1.2719 range. The Bank of England meets on Thursday, and although they are expected to leave rates unchanged, the statement may be dovish.

USD/JPY traded in a 147.71-148.34 band. Sellers emerged with the drop in US 10-year Treasury yields and increased risk aversion.

AUD/USD traded in a 0.6570-0.6607 band, underpinned by last week's Chinese government stimulus measures and firmer commodity prices. New Zealand was closed for a holiday.

There are no Canadian or US economic reports of note today.