USD/CAD fell about 0.40% on Monday to near 1.3790, as the Canadian Dollar rose with higher oil prices and a softer US Dollar. The pair broke below 1.3840, made a fresh weekly low, and reversed most of the early April move towards 1.3950, setting up a second straight weekly drop.
WTI jumped as much as 9% to above $105 per barrel after President Donald Trump announced a US blockade of the Strait of Hormuz. The route has been effectively closed since late February, after talks between the US and Iran in Pakistan collapsed.
Energy Prices Lift The Canadian Dollar
Higher energy prices supported the Canadian Dollar as the Bank of Canada held its overnight rate at 2.25% in March. The next BoC decision is due on 29 April with the Monetary Policy Report.
US March PPI is forecast at 1.2% month-on-month (0.7% prior) and 4.6% year-on-year (3.4% prior). The data comes ahead of the 28–29 April FOMC meeting.
Technically, USD/CAD traded near 1.3792, below the 5-minute 200-EMA at 1.3819 with Stochastic RSI near 84. On the 4-hour chart it sat near the 200-EMA at 1.3791, with support at 1.3790 and 1.3680, while the daily chart showed support at the 50-day EMA (1.3773) and resistance at the 200-day EMA (1.3815).
Looking back at the situation from April 2025, we see a market driven by a sudden geopolitical crisis and spiking oil prices. Today, the environment is notably different, with geopolitical tensions in the Strait of Hormuz having eased significantly over the past year. This relative calm has brought stability to energy markets, which dramatically changes the outlook for the Canadian dollar.
Policy And Volatility Shift Trading Playbooks
The surge in West Texas Intermediate crude to over $105 per barrel that we saw in 2025 is a distant memory. As of this week, WTI is trading in a more stable range around $84.50 per barrel, reflecting a balanced global supply picture rather than the conflict-driven panic of last year. This removes the extreme tailwind that was boosting the loonie, suggesting that any CAD strength will need to come from other fundamental factors.
Central bank policy has also evolved considerably since the Bank of Canada was holding rates at 2.25% last spring. With Canadian inflation having cooled to a 2.7% annual rate as of the last report, the BoC is now in a holding pattern at 4.50%, with markets pricing in the possibility of a rate cut this summer. This contrasts with the uncertainty of 2025, when rising energy costs were threatening to complicate monetary policy.
The USD/CAD exchange rate, currently near 1.3620, reflects this new reality, trading well below the volatile 1.3790 levels seen during the height of the crisis in 2025. The US Producer Price Index data that caused concern last year is now showing a more subdued trend, with the latest figures indicating a 2.1% year-over-year increase. This suggests inflationary pressures from the production side are contained, giving the Federal Reserve more flexibility.
For derivative traders, this calmer environment suggests a shift away from strategies that thrive on high volatility. Last year, buying options like straddles on USD/CAD would have been profitable due to the large price swings, but now, selling volatility appears more attractive. We should consider strategies like writing covered calls against existing USD/CAD long positions or selling cash-secured puts at levels we find attractive to enter a long position, such as near the 1.3500 mark.
Given the potential for the Bank of Canada to cut rates ahead of the Federal Reserve, the Canadian dollar’s upside seems limited. This outlook makes bearish or neutral-to-bearish strategies on the CAD more compelling. Traders could look at buying USD/CAD call spreads to profit from a gradual grind higher in the currency pair, which limits risk while capturing potential upside driven by monetary policy divergence.
