USD/CAD extended its advance for a third session on Tuesday, changing hands around 1.4210 in European trade as the US Dollar stayed firm following renewed geopolitical tensions in the Strait of Hormuz. Some support for the Greenback has been tempered by a reassessment of Federal Reserve policy, with markets no longer expecting rate increases this month or in September after a softer US employment report showed fewer jobs added across April, May and June than forecast.
Oil offered mixed signals for the Canadian Dollar. WTI recovered to about $69.40 a barrel after modest losses, helped by reports that Iran fired at least two missiles at commercial vessels late Monday; two ships were damaged, while UK Maritime Trade Operations said a southbound tanker was hit on its port side by an unknown projectile, sparking a fire, and no casualties were reported. Still, the loonie remains sensitive to crude dynamics: an OPEC+ production boost and a US-Iran peace deal have pressured oil recently, easing inflation concerns and reducing the case for a more aggressive Fed stance. Separately, Bank of Canada policy targets inflation at 1–3% through interest rate settings and can deploy quantitative easing or tightening.
Short-Term Drivers And Safe Haven Flows
Given today is July 7, 2026, the current rise in USD/CAD to the 1.4200 area looks overextended and driven by temporary fear. The geopolitical tensions in the Strait of Hormuz are pushing traders into the US dollar for safety, but we see this as a short-term reaction. This safe-haven demand is currently masking the underlying strength that higher oil prices should be providing to the loonie.
Fundamental Outlook And Trade Positioning
The fundamental case for a weaker US dollar is building, which should cap this rally. The recent US jobs report for June showed only 150,000 jobs were created, far below forecasts and pushing unemployment up to 4.1%. We believe this data solidifies the view that the Federal Reserve will not hike rates this summer, removing a key pillar of support for the greenback.
On the Canadian side, the situation is more stable, allowing fundamentals to reassert themselves once the current geopolitical noise fades. With Canadian inflation holding steady at 2.8%, well within the Bank of Canada’s target range, the recent surge in WTI crude prices towards $70 a barrel will become the dominant positive factor for the loonie. Historically, a sustained period of oil prices at these levels leads to a stronger Canadian dollar.
Therefore, we see the current levels as an opportunity to position for a move lower in USD/CAD in the coming weeks. We are looking to buy August and September put options to profit from a potential decline as market focus shifts from geopolitical risk to economic fundamentals. The 1.4300 level has served as a strong resistance point since March of this year, suggesting that further upside for the pair is limited from here.
