The US Dollar recovered against the Canadian Dollar on Thursday after falls on Wednesday. USD/CAD traded above 1.3910 after rebounding from 1.3865, with the year-to-date high of 1.3966 in focus.
A televised speech by US President Donald Trump did not include a deadline for an end to the Iran war. He said the US Army would hit Iran “extremely hard” during the next two or three weeks.
Trump Signals Continued Pressure On Iran
Trump also urged allies to reopen the Strait of Hormuz. Tehran has kept it closed since the war began on 28 February, and crude prices have risen sharply.
Markets moved towards risk-off trading. Asian shares fell, while European and Wall Street futures pointed to heavy losses.
Crude prices recouped losses from the prior two days. In foreign exchange markets, the US Dollar strengthened against major peers.
US data on Wednesday beat forecasts. ADP Employment Change showed payrolls rose by 62K in March versus 40K expected.
US Data Strengthens Dollar Narrative
US Retail Sales rose 0.6% in February after a 0.1% fall in January. The ISM Manufacturing PMI came in at 52.7, its highest level in nearly four years.
In Canada, the S&P Global Manufacturing PMI slipped to 50 in March from 51 in February. The reading points to flat business activity.
Looking back at the situation in early 2025, we saw a classic risk-off environment where geopolitical fear was the primary driver. The conflict in Iran sent oil prices soaring and investors scrambling for the safety of the US dollar. This dynamic pushed USD/CAD toward the 1.40 level, overriding other factors.
Today, on April 2, 2026, we see some similar underlying economic signals, but the overall market mood is different. The economic divergence we saw last year persists; the most recent S&P Global Canada Manufacturing PMI for March 2026 came in at a contractionary 49.8, while the US ISM Manufacturing PMI showed continued expansion at 50.3. This data alone suggests a preference for the US dollar over the Canadian dollar.
However, the key missing ingredient from last year’s rally is acute geopolitical fear. Market volatility is subdued, with the VIX index currently trading at a relatively calm level of around 14, a stark contrast to the panic-driven markets of early 2025. Without that fear premium, the US dollar’s safe-haven appeal is significantly reduced.
Furthermore, the impact of oil prices must be viewed through this new lens. With West Texas Intermediate (WTI) crude currently holding firm above $80 per barrel, the elevated price is a direct benefit to the Canadian economy and its currency. This support for the loonie is not being overwhelmed by a flight to safety, a lesson we also observed in the months following the initial shock of the Ukraine invasion in 2022.
Given this backdrop, traders should consider strategies that benefit from a capped upside in USD/CAD. Selling call options with strike prices above the 1.3700 resistance level could be an effective way to collect premium, betting that strong oil prices will prevent a runaway rally. For those who still lean bullish due to the economic data, a call spread offers a way to participate in a modest rise while defining risk.
Ultimately, the playbook from 2025 is not fully applicable today, and positions must be more nuanced. Traders should watch for any surprise uptick in global tensions, as that would be the catalyst to pivot back to simple long US dollar strategies. Long volatility positions could serve as a valuable hedge against such an event.
