USD\/CAD traded near 1.3665 on Monday, little changed on the day. It is trying to steady after a late pullback from a monthly high, but remains below 1.3700.<\/p>\n
The US Dollar started the week weaker after reaching its highest level since January. President Donald Trump announced a 15% global tariff, which has weighed on the Dollar.<\/p>\n
US data were mixed, with Factory Orders falling 0.7% month-on-month in December and missing forecasts. Federal Reserve Governor Christopher Waller backed a 25 basis point rate cut, pointing to a gradual weakening in the labour market.<\/p>\n
Oil prices fell after recently reaching a more than six-month high. Concerns about trade war effects and weaker fuel demand weighed on crude, which can pressure the Canadian Dollar due to Canada\u2019s role as a major oil exporter.<\/p>\n
Reports also said Washington is considering limited strikes against Iran if nuclear talks fail. Any further tensions could add volatility to oil prices and the Canadian Dollar.<\/p>\n
We recall this time last year, in early 2025, when USD\/CAD was struggling below the 1.3700 level. The market was caught between a US Dollar weakened by trade tariff threats and a Canadian Dollar hurt by falling oil prices. This created a stalemate that kept the pair range-bound.<\/p>\n
Looking at today’s landscape, the situation has shifted considerably following the Fed\u2019s three quarter-point rate cuts in 2025. With US inflation now stabilizing around 2.9% and January’s job growth coming in at a modest 185,000, the pressure on the US dollar has eased as the market expects the Fed to hold rates steady. This contrasts sharply with the dovish sentiment we saw this time last year from officials like Governor Waller.<\/p>\n
At the same time, crude oil has found a stronger footing, with WTI now trading consistently above $82 per barrel, up from the sub-$75 levels seen during the trade fears of 2025. This strength is largely due to recovering global demand and disciplined OPEC+ output. As a result, the Canadian Dollar is benefiting from stronger terms of trade, a factor that was absent last year.<\/p>\n
For derivative traders, this changes the game from the range-bound strategies of 2025. With the Canadian dollar showing fundamental strength and the US dollar’s yield advantage shrinking, buying CAD call options or USD\/CAD put options with three-to-six-month expiries looks attractive. This allows traders to position for a potential move towards the 1.3350 support level last tested in late 2024.<\/p>\n
Given that the geopolitical tensions with Iran last year did not escalate into a major conflict, implied volatility in the energy markets has since cooled down. This makes option premiums relatively cheaper than they were during the uncertain periods of 2025. Traders could use this lower-cost environment to build positions that profit from a steady decline in the USD\/CAD pair.<\/p>\n
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