The Canadian Dollar weakens against the US Dollar amid rising geopolitical tensions, following the US capture of Venezuelan President Nicolas Maduro. The USD/CAD pair is around 1.3789, having climbed to its highest since December 11.
Markets exhibit a risk-off tone, affecting the Loonie due to potential impacts on regional Crude Oil supply. Canada is a major energy exporter, making its currency sensitive to Oil market changes.
Venezuela In The Crosshairs
US President Trump announced America’s temporary control over Venezuela, with plans for US Oil companies to invest in its energy infrastructure. Venezuela boasts the largest proven crude oil reserves, approximately 303 billion barrels, based on US EIA data.
Attention also turns to upcoming US economic data, influencing Federal Reserve’s monetary policy expectations. Markets anticipate two rate cuts in 2026, despite near-term demand for the US Dollar.
The ISM Manufacturing PMI forecast remains in contraction territory. The US Nonfarm Payrolls report is a key focus for the week.
Minneapolis Fed President Kashkari suggests US monetary policy is near neutral, with concerns over unemployment and inflation. In Canada, the BoC is comfortable with current policy, aiming for inflation near the 2% target, suggesting an end to the BoC’s easing cycle.
Canadian Economic Indicators
Canada’s economic calendar includes the Ivey PMI release and labour market data. Statistics show the US Dollar’s varied strength against other currencies, with gains against the Canadian Dollar.
Given the geopolitical tensions pushing the USD/CAD exchange rate towards 1.3800, we should anticipate heightened volatility in the coming weeks. The uncertainty surrounding Venezuelan oil supply creates a classic risk-off environment that typically benefits the US Dollar as a safe haven. This suggests that option strategies, such as buying straddles or strangles on USD/CAD, could be effective to capitalize on large price swings in either direction.
The market’s immediate reaction to the news from Venezuela is a spike in oil prices, which we saw with WTI crude briefly touching $80 a barrel, a level not consistently held since late 2024. However, the prospect of the US investing to restore Venezuela’s dilapidated infrastructure introduces a complex long-term factor. We should consider that Venezuelan production has been languishing below 900,000 barrels per day for years, a sharp fall from over 2.3 million bpd a decade ago, meaning a successful restoration could flood the market and cap oil prices in the medium term.
This situation creates a potential divergence between short-term and long-term oil futures, a structure that traders can exploit using calendar spreads. Historically, we have seen similar initial price spikes during supply shocks, like the drone attacks on Saudi facilities in 2019, which were followed by a market reassessment. Therefore, being long near-term oil contracts while remaining cautious on contracts dated for late 2026 and beyond is a prudent approach.
The monetary policy outlook further supports a strong US Dollar against the Canadian Dollar. While the market is pricing in two Fed rate cuts this year, the US labor market remained surprisingly resilient throughout 2025, consistently adding over 180,000 jobs per month in the final quarter. In contrast, the Bank of Canada has signaled its hiking cycle is finished, especially as Canadian job growth moderated in the latter half of last year.
This fundamental backdrop, combined with the current geopolitical catalyst, suggests establishing bullish positions on the USD/CAD pair. Buying call options on USD/CAD provides a risk-defined way to gain exposure to further upside, potentially targeting the 1.4000 psychological level not seen since 2022. The increased implied volatility makes options more expensive, but the potential for a sharp move justifies the premium.
We must pay close attention to this Friday’s US Nonfarm Payrolls report for a clearer picture of the Fed’s path. A strong jobs number would likely reduce the probability of aggressive Fed rate cuts, adding further strength to the US Dollar. Conversely, a weak report could provide a better entry point to build long USD/CAD positions on any temporary dip.
