USD/CAD rebounded on Tuesday after touching an intraday low of 1.3760 and was trading near 1.3790, down 0.18% on the session. The Canadian Dollar held part of its earlier gains, but risk aversion linked to rising Middle East tensions constrained further progress even as Oil prices stayed firm. Iranian officials said on Monday they could target energy infrastructure across the Gulf, including US Oil and Gas interests, if further attacks occur, while Qatari authorities urged efforts to reopen the Strait of Hormuz to avert what they called an “industrial catastrophe”. The demand for safe-haven assets offered some support to the US Dollar.
Oil’s strength also reflected the continuing US-Iran conflict, described as having lasted six months, which provided a tailwind for the Canadian Dollar and limited USD/CAD upside. Trading conditions were subdued as markets awaited the US Consumer Price Index (CPI) release on Friday, a key input for the Federal Reserve’s (Fed) policy outlook. Technically, the pair stayed below trendline resistance at 1.3805, with the 100-period SMA at 1.3816 and the 200-period SMA at 1.3848 above spot, while the RSI near 42 pointed to muted momentum; resistance sits at 1.3815-1.3816 and 1.3848, with support at 1.3760.
Trading Strategy and Technical Outlook
We advise derivative traders to closely monitor the 1.3805 resistance level on the USD/CAD pair over the coming weeks. If the exchange rate remains capped below the key moving averages, buying near-term put options could be a highly profitable play. A sustained break below the immediate support at 1.3760 will likely trigger a deeper drop toward historical support levels.
Geopolitical risk in the Middle East remains a major driver, especially with threats to the Strait of Hormuz, which carries roughly 20% of the world’s daily petroleum liquids. Since Canada exports over 4 million barrels of crude oil per day, higher oil prices will naturally boost the Canadian Dollar and drag USD/CAD down. We recommend using call options on crude oil to hedge against sudden supply shocks that could quickly strengthen the Loonie.
Market Volatility and Options Plays
We must also prepare for high volatility surrounding the US CPI inflation release this Friday. Historical data shows that unexpected CPI results can easily move the USD/CAD pair by more than 100 pips in a single trading session. To trade this event, we suggest using straddle options strategies to capture profits from a sharp breakout in either direction.
The Relative Strength Index currently sits around 42, which proves that the latest USD/CAD rebound lacks real buying momentum. This weak momentum means that any upward moves are likely temporary corrections rather than a true trend reversal. We believe selling call options near the 1.3848 resistance level is a smart way to capitalize on this limited upside.
