• The Canadian Dollar remains under pressure against the US Dollar despite support from rising Oil prices.
• Markets continue to favor the Greenback as investors expect multiple Federal Reserve rate hikes this year.
• Scotiabank says the Canadian Dollar remains weighed down by trade uncertainty, even as its undervaluation has narrowed.

USD/CAD extends its advance for a second consecutive day and trades around 1.4230 at the time of writing on Monday, up 0.20% on the day. Despite higher Oil prices, which would normally support the commodity-linked Canadian Dollar (CAD), the Loonie remains under pressure against the US Dollar (USD) as investors continue to favor the Greenback.

Shipping traffic through the Strait of Hormuz is gradually returning to normal after disruptions over the weekend, while the Organization of the Petroleum Exporting Countries and its allies (OPEC+) approved a 188K-barrel-per-day production increase for next month, led by Saudi Arabia and Russia. The decision is viewed as a sign of confidence in regional stability, although it has also revived concerns about a potential global supply surplus.

The US Dollar continues to strengthen as markets expect further monetary tightening from the Federal Reserve (Fed). According to the CME FedWatch tool, investors are pricing in a 76.9% chance of additional interest rate hikes by the end of the year. Market participants are now awaiting the release of the Fed's June meeting minutes on Wednesday for further guidance on the outlook for monetary policy.

Meanwhile, the US ISM Services Purchasing Managers Index (PMI) eased slightly to 54 in June from 54.5 previously, matching market expectations. The survey showed weaker New Orders and softer Prices Paid, while the Employment Index improved, suggesting the US services sector continues to expand at a solid pace.

According to Scotiabank, the Canadian Dollar retains a soft bias despite narrower short-term yield spreads between Canada and the United States (USD). The bank notes that confirmation of the non-renewal of the United States-Mexico-Canada Agreement (USMCA) extends trade uncertainty for Canadian exporters. Analysts also expect the Bank of Canada's (BoC) Business Outlook Survey to reflect this cautious environment. While the Canadian Dollar remains fundamentally undervalued, Scotiabank believes that this undervaluation has narrowed steadily, limiting the currency's upside potential in the near term.