On Thursday, the USD/CAD pair maintained a defensive position below the 1.4100 mark, driven by a combination of various factors. However, the lack of sustained selling calls for caution before concluding that the recovery this week from the psychological level of 1.4000, or the monthly low, has run its course, which could herald deeper losses.

Oil prices have reached new July highs amid escalating tensions in the Middle East, leading to a significant reduction in cargo flow through the Strait of Hormuz. This has been compounded by the actions of Iran-backed Houthis in Yemen, who announced a blockade of Saudi ports, raising concerns about potential further restrictions on global oil supplies and supporting the oil market.

This, in turn, supports the Canadian dollar, which is tied to commodity prices, and may also contribute to the weakening of the US dollar, negatively impacting the USD/CAD pair.

At the same time, high oil prices continue to fuel inflation fears and intensify expectations of interest rate hikes by the US Federal Reserve. According to the CME Group's FedWatch tool, traders assess the probability of a rate hike by the US central bank by the end of the year at over 90%. These expectations support US Treasury yields at multi-month highs, thus bolstering the dollar.

Furthermore, forecasts that the Bank of Canada will keep interest rates unchanged until the end of 2026 will also help limit losses in the USD/CAD pair.

Adding to the uncertainty is the recently announced 50% tariff on Canadian goods by US President Donald Trump, which may deter traders from opening aggressive positions to strengthen the Canadian dollar.

Now, upcoming geopolitical events and trade front news may create short-term trading opportunities for the USD/CAD pair against a backdrop of mixed fundamental factors.

However, attention remains focused on the upcoming Federal Reserve monetary policy meeting next week.

From a technical perspective, the pair remains defensive below the round level of 1.4100. Oscillators are neutral, indicating that the pair has not chosen a direction. Therefore, both bears and bulls should exercise caution until new fundamental events occur.