USD/CAD rose for a third day on Monday, trading just under the mid-1.3900s in Asia and near a nearly four-month high set last week. Gains were limited as higher crude oil prices supported the Canadian dollar.
Donald Trump said Iran’s power plants and bridges could be targeted if the Strait of Hormuz is not reopened by Tuesday, while Iran set new conditions for reopening it. The developments raised escalation risk in the Middle East and supported demand for the US dollar, alongside rising market pricing for a Federal Reserve rate rise.
Usd Cad Near Term Drivers
US Nonfarm Payrolls showed 178K jobs added in March after a revised loss of 133K previously, and unemployment fell to 4.3%. Combined with inflation concerns linked to higher oil prices, the data reduced expectations of near-term Fed rate cuts and kept US Treasury yields elevated.
Oil prices climbed to a nearly four-week high on supply disruption fears, which helped limit selling in the Canadian dollar. Traders looked for sustained trading above 1.3900, near the year-to-date high, following an uptrend from 1.3525, the March swing low.
The Canadian dollar is influenced by Bank of Canada rates, oil prices, economic growth, inflation, trade balance, market risk appetite, and the US economy. BoC policy aims to keep inflation in a 1–3% range, with quantitative easing and tightening also affecting credit conditions.
Looking back to this time in 2025, we saw a clear tug-of-war in USD/CAD, with a hawkish Fed and Mideast tensions boosting the US dollar while strong oil prices supported the loonie. That dynamic of conflicting fundamentals is very much in play again today. The key takeaway from last year was that oil prices could put a firm cap on the pair, even when US data was strong.
Central Bank Divergence And Oil Impact
Today, the policy divergence between central banks is even more pronounced than it was then. The US Federal Reserve is holding firm with its key rate at 5.25% after the March 2026 jobs report showed another strong gain of 215,000, keeping our unemployment rate at a low 3.9%. In contrast, the Bank of Canada is signaling a more dovish stance as Canadian inflation has cooled to 2.8%, increasing the odds that they will be the first to cut interest rates.
Despite this rate differential favoring the US dollar, crude oil is once again the complicating factor, with WTI currently trading above $85 a barrel due to tight OPEC+ supply. This provides significant underlying support for the Canadian dollar and is keeping the USD/CAD pair from breaking decisively higher. This is why we are seeing the pair struggle to hold gains above the 1.3700 level, much like the struggle we saw around 1.3900 in 2025.
For derivative traders, this environment suggests that buying outright calls on USD/CAD may be expensive and risky due to the oil price cap. A better approach in the coming weeks could be to use bull call spreads, such as buying a May 1.3750 call and selling a 1.3900 call to finance it. This strategy profits from a gradual grind higher while defining risk if oil prices were to spike and send the pair lower.
Alternatively, for those confident that oil provides a solid floor, selling out-of-the-money puts with a strike around 1.3600 could be a viable strategy to collect premium. This position benefits from time decay and the market’s failure to break down. We must continue to watch upcoming US and Canadian inflation data, as any surprises could quickly alter central bank expectations and break the current stalemate.
