USD/CAD traded slightly higher near 1.3850 in Thursday’s European session, after three days of declines. The move came as the US Dollar firmed amid doubts about the US-Iran ceasefire announced early Wednesday.
The US Dollar Index (DXY) was up 0.1% near 99.10. Market attention turned to reports of ongoing Israeli attacks on Iran-backed Houthis in Lebanon, and claims by Iran’s parliament speaker and negotiator Mohammad Bagher Qalibaf that the US breached three clauses of a 10-point proposal.
Ceasefire Doubts Lift The Dollar
Iran said it would send a team to Pakistan late Thursday for a first round of talks with the US. Canada’s employment data for March is due on Friday.
Technically, USD/CAD stayed above the 20-day EMA at 1.3827. The RSI was around 57, with support at 1.3827, then 1.3750, and a potential retest area near 1.3950.
Statistics Canada’s Net Change in Employment measures the change in the number of employed people. Market pricing often links stronger readings with a firmer Canadian Dollar, while weaker readings can weigh on it.
With USD/CAD holding near 1.3850, we see the market caught between two major forces. The uncertainty surrounding the US-Iran peace talks is propping up the US dollar as a safe haven. However, tomorrow’s Canadian employment data could dramatically shift momentum and strengthen the loonie.
Options Strategies For Rising Volatility
We are positioning for a significant move following Friday’s jobs report. We remember the market’s reaction in early 2025 when employment unexpectedly surged by over 100,000 jobs, causing a sharp rally in the Canadian dollar. With economists forecasting a modest gain of just 18,000 for March, any number significantly higher could send USD/CAD tumbling towards the 1.3750 support level.
Conversely, the geopolitical situation remains a primary driver for US dollar strength. If these negotiations in Pakistan falter, we expect a flight to safety that could easily push USD/CAD to retest the recent highs around 1.3950. We saw this pattern clearly in 2025 during the Strait of Hormuz tensions, when the US Dollar Index (DXY) jumped over 1.5% in a single week.
The price of WTI crude oil, currently trading around $86 a barrel, adds another layer of complexity. An escalation in the Middle East would likely push oil prices higher, which typically supports the Canadian dollar. This creates a conflicting signal where the safe-haven demand for USD competes directly with CAD strength from higher oil prices.
Given this setup, we are looking at options to trade the expected rise in volatility. Buying USD/CAD call options with a strike price above 1.3900 would be a straightforward way to profit from a breakdown in the ceasefire talks. Alternatively, put options with a strike below 1.3800 offer a way to capitalize on a surprisingly strong Canadian jobs report.
For those anticipating a sharp move but uncertain of the direction, a long straddle strategy is advisable. This involves buying both a call and a put option at the same strike price, positioning to profit from a significant price swing either way. Implied volatility on USD/CAD options has already ticked up 4% this week, suggesting the market is bracing for impact.
