USD/CAD gave back part of Thursday’s earlier rise after new headlines about US-Iran talks. It traded near 1.3775, up almost 0.20% after reaching about 1.3800.
Iran’s ILNA news agency, citing Al Arabiya, said a final draft US-Iran agreement had been reached with mediation from Pakistan. It said an announcement could come within the next few hours, with the deal linked to reopening the Strait of Hormuz.
Dollar Pullback After Iran Talk Headlines
After the report, the US Dollar fell back after hitting six-week highs. The US Dollar Index traded near 99.16, down from an intraday high around 99.53.
The Canadian Dollar did not fully benefit as oil prices also moved lower. WTI traded near $97 per barrel after rising towards $100, while Brent slipped from about $105 towards $100.
Traders are watching for confirmation of any agreement, with Iran’s nuclear programme still a key issue. US President Donald Trump said the US would keep a hard stance and warned military action could return if there is no deal.
US PMI data showed the Composite PMI was 51.7 in May. Manufacturing PMI rose to 55.3 from 54.5, a 48-month high, while services business activity eased to 50.9 from 51.
Key Data Watch For Canada And US
Friday’s focus includes Canada’s Retail Sales and the University of Michigan consumer sentiment and inflation expectations survey.
We see the USD/CAD pair reacting to competing forces, making it a tricky environment for directional bets. The US Dollar is gaining from safe-haven demand amid new geopolitical tensions, while the Canadian Dollar is being weighed down by a more cautious central bank. This setup requires traders to be nimble and focus on managing volatility.
This environment feels familiar; we saw a similar pattern back in 2025 when headlines about a potential US-Iran agreement caused sharp, but temporary, moves in the dollar. That experience taught us that initial reactions to geopolitical news can be misleading, especially when the details are unconfirmed. Therefore, using options to define risk on new positions is a prudent approach.
The Canadian Dollar is not benefiting from firm oil prices, with WTI crude currently trading above $85 a barrel. The market seems more concerned with the Bank of Canada’s recent signals about potential rate cuts, a stark contrast to the Federal Reserve’s position. This divergence is keeping a floor under the USD/CAD exchange rate, which is currently holding near 1.3650.
Looking at the hard data, the US economy appears more robust after the last non-farm payrolls report showed a healthy 250,000 jobs were added. This strengthens the case for the Federal Reserve to maintain its current policy for longer. In contrast, recent Canadian retail sales figures were flat, adding to the narrative of a slowing domestic economy.
In the coming weeks, traders should pay close attention to incoming inflation reports from both nations, as they will guide central bank expectations. Implied volatility in USD/CAD options has climbed to a three-month high of 8.2%, reflecting the market’s uncertainty about the next major move. This suggests that strategies designed to profit from price swings, rather than a specific direction, may offer better risk-adjusted returns.
