USD/CAD rose 0.33% on Tuesday to near 1.3670, up from Monday’s intraday low around 1.3600. It briefly moved above 1.3690 and remains more than 2% below the March peak near 1.3950.
The Canadian Dollar saw limited support from stronger oil prices, with WTI up for a seventh session and trading close to $100 per barrel. This followed US President Donald Trump rejecting Iran’s latest ceasefire proposal, while the Strait of Hormuz remains effectively closed in the ninth week and tanker flows are near zero.
Key Central Bank Focus
Tuesday’s US Consumer Confidence figure for April did not alter direction ahead of Wednesday’s events. Markets are focused on a Bank of Canada decision expected to keep the overnight rate at 2.25%, after March comments about inflation risks linked to higher energy prices.
The Federal Reserve is also expected to hold the federal funds rate at 3.50% to 3.75%. Chair Jerome Powell’s term ends in May, and Kevin Warsh is named as the likely replacement, despite congressional challenges.
On a 15-minute chart, USD/CAD traded at 1.3672 and stayed above the day’s open at 1.3615. Stochastic RSI eased from overbought levels, with support near 1.3615 and no clear nearby resistance.
We remember this time last year, in April 2025, when USD/CAD was pushing towards 1.3700 amidst significant geopolitical tension. The main driver then was the crisis in the Strait of Hormuz, which sent WTI crude oil prices soaring near $100 per barrel. Both the Federal Reserve and the Bank of Canada were on hold, trying to manage the resulting inflationary shock.
One Year Later Market Backdrop
A year later, the landscape has changed, as the conflict de-escalated and tanker flows normalized by late 2025. WTI crude has since fallen from those crisis levels and is now trading around $84 per barrel as of late April 2026. This sustained, but lower, energy price has provided support for the Canadian dollar and helped cap the upside for USD/CAD.
However, the inflation that was sparked last year has proven to be persistent, keeping central bankers cautious. The latest U.S. CPI data for March 2026 showed a 2.9% annual increase, while Canada’s CPI came in at 2.7%. With both figures still stubbornly above the 2% target, the market is no longer expecting imminent rate cuts from either the Fed or the BoC.
For derivative traders, this creates an environment where implied volatility may be underpriced. With USD/CAD currently consolidating around 1.3550, buying options straddles or strangles could be an effective strategy. This approach would allow traders to profit from a significant price move in either direction, which could be triggered by an unexpected inflation report in the coming weeks.
We also see an opportunity in playing the interest rate differential, which has been a key driver. Historically, when the gap between U.S. and Canadian two-year bond yields widens, USD/CAD tends to rise. Traders can use forward contracts or options on futures to speculate on whether this spread will widen or compress based on upcoming economic data.
In the immediate future, we should pay close attention to the next employment reports from both nations. A surprise in the job numbers could shift central bank expectations and break the pair out of its current range. Therefore, positions should be structured to benefit from a potential spike in volatility rather than a sustained directional trend.
