The USD/CAD pair extended its rebound during Asian trading hours on Monday, with the exchange rate reclaiming the 1.3800 level.

While it remains some distance from the high near 1.3870 touched last week, the overall market sentiment continues to favor the US dollar.

The core factors currently in focus remain the diplomatic negotiations between the US and Iran and the security situation in the Middle East.

As significant differences persist between the two sides regarding the nuclear program and issues surrounding the Strait of Hormuz, market expectations for a final agreement have cooled.

Simultaneously, Israel's expansion of military operations in Lebanon has further increased regional uncertainty.

Rising risk aversion has prompted increased capital flows into the US dollar, serving as a key driver for the USD/CAD's appreciation.

The US dollar's strength is not only driven by safe-haven demand but also supported by expectations regarding Federal Reserve policy.

With the recent rebound in international oil prices and renewed concerns over energy supply risks, markets are worried that US inflation may face renewed upward pressure.

Based on market pricing, investors now see an increased probability of the Fed implementing another 25-basis-point rate hike within the year.

Expectations of higher interest rates are keeping US Treasury yields elevated, enhancing the attractiveness of dollar-denominated assets.

In contrast, the Canadian dollar faces pressure from domestic economic data.

Canada's latest data shows that first-quarter GDP contracted at an annualized rate of approximately 0.1%, significantly weaker than market expectations.

This unexpected contraction reflects the gradual impact of high interest rates on consumption and investment activity.

The economic slowdown has reduced market expectations for further policy tightening by the Bank of Canada, thereby weakening the loonie.

However, the Canadian dollar has not experienced a sharp decline, partly due to the recovery in international oil prices.

As a major energy exporter, higher crude prices typically benefit Canada's trade revenue and fiscal position.

Recent renewed tensions in the Middle East have prompted a rebound in oil prices from their lows of over a month ago.

This movement has somewhat improved market sentiment towards the Canadian dollar and limited further gains for USD/CAD.

From a technical perspective, on the daily chart, USD/CAD has formed a clear ascending channel since early May, with the overall bullish structure remaining intact.

The price continues to trade above the main moving average system, indicating a medium-term uptrend.

The 1.3750 area constitutes a key support level, while resistance is seen near 1.3870.

A break above 1.3870 could open the path towards the 1.3950 and 1.4000 regions, while a drop below 1.3750 could trigger a phase of correction.

Markets will continue to monitor the progress of US-Iran talks, developments in the Middle East, and upcoming US data releases including the ISM Manufacturing PMI and non-farm payrolls.

Canadian economic data and international oil price movements will also continue to influence the Canadian dollar's performance.

Against the backdrop of a strong US dollar and a slowing Canadian economy, USD/CAD remains biased towards a choppy upward trajectory, though the rebound in oil prices may cap its upside.