USD\/CAD fell for a sixth session on Monday, trading near 1.3663 after dropping from an intraday high around 1.3709. The move followed a softer US Dollar after it opened the week with a bullish gap.<\/p>\n
Over the weekend, Iran again closed the Strait of Hormuz, citing ceasefire violations linked to a US naval blockade. Reports of a diplomatic effort led by Pakistan reduced risk demand for the US Dollar and supported the Canadian Dollar.<\/p>\n
In Canada, March CPI rose 0.9% month on month, up from 0.5% in February but below the 1.1% forecast. Annual CPI increased to 2.4% from 1.8%, under the 2.5% forecast.<\/p>\n
Core CPI rose 0.2% month on month, down from 0.4% in February, while the annual core rate moved up to 2.5% from 2.3%. The data points to a cautious Bank of Canada approach ahead of its meeting later this month.<\/p>\n
Markets are watching for further US-Iran developments, with a possible second round of talks this week as a two\u2011week ceasefire expires on Wednesday. US President Donald Trump said it is \u201chighly unlikely\u201d he will extend the ceasefire, and that the Strait will not reopen until a deal is signed.<\/p>\n
Looking back to this time in 2025, we recall how USD\/CAD pulled back towards 1.3660 as specific US-Iran geopolitical risks temporarily faded. The market was also reacting to a softer-than-expected Canadian inflation report for March 2025. That dynamic created a short-term opportunity for Canadian dollar strength.<\/p>\n
The inflation picture today is quite different, making a repeat of that move less likely. While the annual CPI in March 2025 was 2.4%, the latest data for March 2026 shows inflation is proving much stickier at 2.9%, keeping pressure on the Bank of Canada. This persistent inflation challenges the central bank’s ability to be as patient as it was last year.<\/p>\n
We remember the Bank of Canada\u2019s cautious stance in 2025, but they have since begun cutting rates, with the policy rate now at 4.25%. This contrasts with the US Federal Reserve’s rate, which remains at 5.00%, creating a significant yield advantage for the Greenback. This interest rate differential should continue to provide underlying support for USD\/CAD.<\/p>\n
Volatility last year was driven by very specific headlines about the Strait of Hormuz. Today, options markets show implied volatility is being supported more by broad concerns over a global economic slowdown rather than a single flashpoint. This suggests traders should consider strategies that protect against sustained weakness in the Canadian dollar, such as buying call options on USD\/CAD.<\/p>\n
The soft economic backdrop mentioned in 2025 has seen only modest improvement, with Canada’s unemployment rate declining slightly from 6.1% to a still-elevated 5.8%. This underlying economic softness, combined with the interest rate gap, makes it difficult to build a strong case for sustained Canadian dollar appreciation. Therefore, any dips in USD\/CAD should be viewed as potential buying opportunities.<\/p>\n
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