USD/CAD traded lower on Wednesday as the US Dollar fell after a temporary ceasefire between the United States and Iran. The pair was near 1.3847, posting a third consecutive daily decline.
Donald Trump said attacks on Iran would be paused for two weeks if Tehran allows the “complete, immediate, and safe opening of the Strait of Hormuz”. Iran agreed that safe transit can be maintained during this period in coordination with Iranian armed forces.
Dollar Weakens After Ceasefire
The US Dollar dropped to one-month lows as positions were reduced after the ceasefire lowered near-term risk. The US Dollar Index was around 98.80, down nearly 0.85% on the day.
Uncertainty persisted amid reports of airstrikes between Israel and Lebanon. Iran’s Tasnim News Agency said Tehran could leave the ceasefire if attacks on Lebanon continue, and the IRGC warned foreign aircraft entering its airspace would breach the deal.
The Canadian Dollar reacted little to Oil moves, with the US Dollar driving most price action. Earlier higher Oil prices raised inflation concerns, but the recent pullback in Crude reduced that pressure.
Markets awaited policy and data updates, including the Fed minutes on Wednesday and US PCE on Thursday. US CPI and Canada’s jobs data were due on Friday.
Options Strategies For Heightened Volatility
We recall the temporary US-Iran ceasefire in 2025, which triggered a sharp, but short-lived, drop in USD/CAD below 1.3850. The pair’s subsequent rebound served as a key lesson on the fragility of geopolitical relief rallies. That experience now informs our view that any de-escalation headlines should be treated with caution, as underlying tensions often remain.
In the current environment of April 2026, implied volatility in the currency markets has been creeping higher due to trade disputes in Southeast Asia. One-month implied volatility for USD/CAD is now at 8.9%, up from a low of 6.5% earlier this year, suggesting traders are pricing in larger price swings. This makes selling uncovered options risky, favoring strategies that can profit from a sudden move in either direction.
Given this setup, purchasing straddles on USD/CAD for the coming weeks could be an effective strategy to trade the uncertainty. This allows us to capitalize on a significant price move without needing to predict its direction. We saw this play out successfully after the 2025 ceasefire collapsed, when the pair rallied over 200 pips in a single week.
The economic backdrop has also shifted since last year, with the Bank of Canada now signaling a more hawkish stance than the Federal Reserve. Canada’s latest jobs report showed the economy added 41,000 jobs, beating expectations, while US Core PCE inflation recently dipped to 2.6%. This fundamental divergence is providing a floor for the Canadian Dollar that was absent in 2025.
Considering this policy divergence, we are also positioning with bearish risk reversals, which involve buying CAD call options while selling CAD put options. This provides a cost-effective way to gain upside exposure to the Loonie. Recent CFTC data supports this view, showing that speculative net-long positions in the Canadian Dollar have reached their highest level since the third quarter of 2025.
