The US dollar weakened on Friday, pushing USD/CAD down 0.26% to around 1.3670, as broad greenback softness outweighed a sharp drop in oil prices and helped support the Canadian dollar.
Strait of Hormuz fully reopens, oil prices slide
Oil came under pressure after Iranian Foreign Minister Abbas Araghchi said the Strait of Hormuz had fully reopened to commercial shipping under a ceasefire arrangement, easing fears of supply disruptions in one of the world’s key energy chokepoints.
West Texas Intermediate crude fell toward $80 per barrel, logging one of its steepest daily losses in weeks. The move reflected a rapid unwinding of the risk premium that had built up in energy prices amid earlier tensions in the Gulf.
Dollar weakness supports Canadian dollar
Normally, weaker oil prices weigh on the Canadian dollar, but on Friday the broader slide in the US currency dominated.
The US Dollar Index hovered near multi‑week lows around 97.80, extending its decline against a basket of major currencies as traders reassessed the path of US interest rates. Shifts in expectations for Federal Reserve policy kept the greenback under steady pressure throughout the session.
Market pricing showed a 38.2% chance of a 25‑basis‑point Fed rate cut by year‑end, up from 25.9% a day earlier. The adjustment followed the drop in energy prices and a perception that softer fuel costs could feed into slower inflation later in the year.
Focus turns to Canadian inflation data
In Canada, attention is now fixed on Monday’s March Consumer Price Index release. Economists expect inflation to accelerate from February, in part reflecting earlier energy‑driven price increases.
Bank of Canada Governor Tiff Macklem has warned that balancing inflation control with overall economic stability remains difficult. Policymakers are assessing whether easing supply chain pressures and the latest energy developments will alter their medium‑term outlook.
Consensus forecasts point to a quarterly inflation rate of around 2.50%. A stronger‑than‑expected reading could highlight a growing policy gap between the Bank of Canada and the Federal Reserve and may lend additional support to the Canadian dollar.
Greenback broadly weaker across major currencies
Currency data showed the US dollar under broad pressure. It was weakest against the Japanese yen, down about 0.62%, and also lower versus the British pound, euro, and Canadian dollar. Losses against most major currencies generally ranged from 0.11% to 0.35%, underlining the week’s negative tone for the greenback.
This broad-based softness has improved conditions for assets that tend to benefit from lower US borrowing costs, as they become cheaper when priced in other currencies. Historically, periods when markets anticipate Fed rate cuts have coincided with renewed appetite for higher‑growth assets.
Volatility eases as risk appetite returns
Measures of expected turbulence in US equities have also eased. The CBOE Volatility Index (VIX) traded near 17.83, down sharply from a peak of about 31 in late March. The retreat in volatility suggests a tentative return of risk appetite, a backdrop that often favors alternative and non‑traditional asset classes.
Against this environment, analysts at TD Economics project that the Canadian dollar could appreciate by roughly 1.3 cents against its US counterpart by year‑end if current US dollar weakness persists.
Outlook: data and policy divergence in focus
The easing of Middle East tensions has stripped out a sizable risk premium from oil and contributed to a calmer tone across global markets. For traders in currency, commodity, and alternative asset markets, the key question is whether the combination of a softer US dollar and stable or lower interest rates will endure.
Upcoming inflation data from both the United States and Canada will be central to that assessment. Any clear divergence in price trends and central bank responses could reshape the USD/CAD trajectory and influence broader risk appetite in the weeks ahead.
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