USD\/CAD traded higher near 1.3915 in early European dealings on Tuesday. The US Dollar strengthened against the Canadian Dollar as markets watched a possible Tuesday US deadline linked to reopening the Strait of Hormuz.<\/p>\n
Donald Trump said on Monday that Iran\u2019s response to a US ceasefire proposal sent through intermediaries was not sufficient. He warned of attacks on Iran\u2019s infrastructure if the Strait of Hormuz is not fully reopened by his deadline, which kept focus on Middle East tensions.<\/p>\n
Rising crude oil prices may support the Canadian Dollar and limit further gains in USD\/CAD. Canada is a major oil exporter, and higher oil prices tend to support the currency.<\/p>\n
US data also influenced the move. The ISM Services PMI fell to 54.0 in March from 56.1 in February, below the 55.0 forecast.<\/p>\n
We remember how the market was pricing in a major conflict premium back in early 2025, which drove the US dollar higher as a safe haven. This geopolitical tension created a classic standoff in the USD\/CAD pair. The dollar benefited from the flight to safety while the Canadian dollar was supported by the resulting surge in crude oil prices.<\/p>\n
This dynamic teaches us that in the coming weeks, we must watch for divergences between safe-haven flows and commodity prices. Looking back, implied volatility on USD\/CAD options spiked to over 11% during that Hormuz crisis in 2025, a stark contrast to the calmer 6.8% we see today according to CME Group data. This suggests that buying options to hedge against sudden geopolitical shocks is relatively cheap right now.<\/p>\n
The threat to the Strait of Hormuz was particularly significant, as the U.S. Energy Information Administration (EIA) confirms that nearly 21 million barrels of petroleum liquids pass through it daily, representing about 21% of global consumption. A closure would send WTI crude, currently stable around $85 per barrel, soaring past the $110 highs seen during similar past crises. Derivative traders should therefore consider holding long-dated call options on crude oil futures as a hedge for any renewed Middle East instability.<\/p>\n
The weak US ISM Services PMI reading from March 2025 was an early sign that economic fundamentals were softening beneath the geopolitical headlines. Today, the latest ISM print of 51.4 shows the US services sector is still expanding, but the slowing pace keeps the Federal Reserve’s policy path uncertain. This means we should be prepared for the dollar’s direction to be driven more by data surprises than it was a year ago.<\/p>\n
On the Canadian side, the Bank of Canada is now contending with inflation that has cooled to 2.8%, according to the latest figures from Statistics Canada. This brings it within the central bank’s target range and reduces pressure for further rate hikes, creating a different fundamental backdrop for the loonie than during the 2025 oil scare. Consequently, the Canadian dollar’s sensitivity to oil price swings might be more pronounced now than its sensitivity to interest rate differentials.<\/p>\n
Therefore, a prudent strategy for the coming weeks involves using option structures like straddles on the USD\/CAD pair, which profit from a large move in either direction. The 2025 situation showed us that when geopolitical risk and commodity fundamentals pull in opposite directions, the market can break out violently once one of those forces gives way. Preparing for volatility, rather than betting on a specific direction, remains the most logical response.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" USD\/CAD rose toward 1.3915 as US dollar gained on Hormuz deadline fears; oil capped gains.<\/p>\n","protected":false},"author":103,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-46817","post","type-post","status-publish","format-standard","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/46817","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/103"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=46817"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/46817\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=46817"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=46817"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=46817"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}