The Canadian Dollar (CAD) remains mostly unchanged today amidst a slightly firmer US Dollar and gains for the Mexican Peso (MXN). Scotiabank’s Chief FX Strategists note a mild bid for North American foreign exchange markets.
Oil prices have risen by more than 1% as tensions increase in Iran and President Trump threatens tariffs on countries trading with Tehran. The Canadian Dollar’s performance recently has been impacted by weak energy prices and subdued trade terms.
Canadian Dollar Fair Value Estimate
A fair value estimate for the Canadian Dollar has strengthened to 1.3824 as oil prices rise. An inside range session on the daily chart suggests the US Dollar rebound has stalled.
The US Dollar’s net loss on Monday introduces mild technical risks. Intraday price action suggests possible reversal above the 1.39 resistance level, with potential for a dip back to the low 1.38s.
Looking back to this time in early 2025, we saw the US dollar’s rebound stall out as oil prices began to firm up. Geopolitical tensions in Iran were the primary driver then, dampening what had been a strong run for the greenback against the Canadian dollar. That period set a precedent for how sensitive the currency pair is to energy market shocks.
Today, that dynamic is amplified as WTI crude futures have surged past $95 a barrel following renewed disruptions in the Strait of Hormuz. This is a far more aggressive price move than we observed last year and provides a significant tailwind for the loonie. Historically, such sharp rises in oil, like the one seen after the invasion of Ukraine in 2022, have preceded months of Canadian dollar strength.
USDCAD Testing Key Support Levels
The USD/CAD pair is now testing the 1.3350 level, a stark contrast to the firm resistance we saw developing around the 1.39 mark in January of 2025. With this momentum, we see a strong possibility of a move towards the 1.32s in the coming weeks. The technical setup clearly favors further downside for the pair.
For derivatives traders, this environment suggests it is time to position for further Canadian dollar gains. Implied volatility on three-month USD/CAD options has jumped to 8.5%, indicating the market is pricing in much larger swings than we’ve seen in recent months. This makes strategies like buying CAD call options or USD put options attractive for their defined risk and upside potential.
Fundamentally, this view is supported by diverging central bank outlooks. The latest Canadian CPI print came in at an unexpectedly high 3.2%, making it very difficult for the Bank of Canada to consider rate cuts. This contrasts with the US, where last week’s jobless claims ticked up to 225,000, suggesting some labor market cooling that gives the Fed more flexibility.
We are also seeing this sentiment reflected in market positioning. The most recent data shows a significant increase in net-long Canadian dollar positions among non-commercial traders, a notable shift from the more balanced stance held through much of last year. This indicates a growing conviction that the path of least resistance for the Canadian dollar is upward.
