USD/CAD rose after three days of falls, trading near 1.3860 in Asian hours on Thursday. The move followed renewed safe-haven demand for the US Dollar amid uncertainty over a ceasefire between the United States and Iran.
Minutes from the Federal Reserve’s March meeting, released on Wednesday, showed a wait-and-see approach. Policymakers broadly supported keeping rates unchanged, with nearly all participants backing no change and many judging policy near a neutral range.
Oil Prices And Cad Support
The pair’s rise may be limited if the Canadian Dollar gains support from higher oil prices. West Texas Intermediate was trading around $91.50, after Iranian media reported a halt in tanker traffic through the Strait of Hormuz following fresh Israeli strikes in Lebanon.
Iranian officials said recent events breached the terms of the less-than-day-old ceasefire. Parliament Speaker Mohammad Bagher Ghalibaf said the US breached three clauses of Iran’s 10-point proposal and said it was “unreasonable” to continue talks for a permanent deal.
US Vice President JD Vance said the strait could start reopening. He is leading a US delegation to Islamabad for direct talks with Iran this weekend.
Looking back at this period in 2025, we saw USD/CAD caught between two powerful forces. The US Dollar was finding a bid from geopolitical uncertainty surrounding the US-Iran ceasefire talks. At the same time, that same tension was driving up oil prices, which in turn supported the commodity-linked Canadian Dollar.
Volatility Strategy For Usdcad
This dynamic created significant volatility, which is a derivative trader’s best friend. We saw West Texas Intermediate crude briefly spike to over $95 per barrel in mid-2025 following those Strait of Hormuz fears, which ultimately capped the upside in USD/CAD and pushed it back toward 1.3700. This serves as a reminder of how quickly commodity strength can override simple safe-haven currency flows.
In the coming weeks, we should be looking to buy volatility rather than picking a firm direction. The situation last year showed that geopolitical headlines can cause sharp, unpredictable swings in both directions. Purchasing options, such as straddles or strangles on USD/CAD, allows us to profit from a large move regardless of whether it’s up or down.
Current implied volatility for at-the-money USD/CAD options is trading near a one-year low of 6.8%, which seems too cheap given the lessons from 2025. With the Bank of Canada and the Federal Reserve both expected to diverge on interest rate policy later this year, a catalyst for a breakout is building. We should consider buying options now before the market starts pricing in this potential for sharp moves.
We must also pay close attention to the oil market, as WTI crude is a primary driver for the Canadian Dollar. The strong positive correlation between oil prices and the CAD, which reached over 0.75 during the tensions last year, remains a key relationship to monitor. Any renewed instability in the Middle East suggests that buying call options on oil futures could be an effective proxy trade for Canadian Dollar strength.
