The Canadian dollar pared earlier losses on Monday, stabilising from a more than one‑month low against the U.S. dollar as crude oil prices climbed and offset some of the strength in the greenback.
The USD/CAD pair recovered to the 1.3700 region in Asian trading after filling a small bearish gap, halting a five‑day advance in the Canadian dollar that had driven the pair to its weakest level since March 13.
Geopolitical tensions in gulf support U.S. dollar
Fresh tensions between the United States and Iran underpinned demand for the U.S. dollar, which tends to benefit during periods of risk aversion.
Tehran said it would again restrict traffic through the Strait of Hormuz, warning that commercial ships approaching the area could be targeted. The move followed an expansion of a U.S. naval blockade near Iranian ports that Iran called a violation of an existing ceasefire.
The renewed restrictions raised fears over potential disruptions to global oil supplies, adding a risk premium to crude and reinforcing safe‑haven demand for the U.S. currency.
Oil rebound cushions Canadian dollar
Crude oil prices moved higher after the Strait of Hormuz headlines, helping to limit further downside in the Canadian dollar, which is closely linked to energy prices due to Canada’s export mix.
With crude holding above $86 per barrel in early trade, the Canadian currency found partial support against the broad‑based rise in the greenback, keeping USD/CAD’s gains contained.
Fed expectations trim dollar’s intraday advance
The U.S. dollar eased slightly from a one‑week high later in the session as traders scaled back expectations of another interest‑rate increase by the Federal Reserve.
This moderation in rate‑hike odds curbed follow‑through buying of the greenback and helped cap the upside in USD/CAD.
Daily performance data showed the U.S. dollar strongest against the Australian dollar, up 0.24%. Smaller gains were recorded versus the Canadian dollar (0.10%), the euro (0.04%), and the Japanese yen (0.03%). The U.S. currency slipped 0.10% against the Swiss franc and saw mixed moves against other major peers.
Tug‑of‑war between haven demand and oil‑linked currencies
The current backdrop underscores a clear tug‑of‑war in currency markets. Safe‑haven demand is lifting the U.S. dollar as geopolitical risks rise, while higher crude prices are offering a counterweight by supporting the Canadian dollar.
This same dynamic is feeding through to digital and alternative asset markets, where U.S. dollar strength often steers short‑term price direction. Further escalation around the Strait of Hormuz could deepen demand for the greenback and pressure alternative asset classes, while any sign of de‑escalation or easing of the naval blockade could quickly trigger flows out of haven assets.
Market participants in alternative currency markets are watching the Persian Gulf closely, aware that a change in the military or diplomatic tone could reverse current trends. Additional military action would likely reinforce U.S. dollar strength and extend pressure on risk‑sensitive assets.
WTI outlook and inflation risk
West Texas Intermediate (WTI) crude is trading above $83 per barrel, with some analysts warning that ongoing supply threats could push prices towards $105 or higher if disruptions persist.
A sustained move to those levels would not only continue to underpin the Canadian dollar but could also stoke renewed inflation concerns globally. Historically, such an inflation backdrop has tended to support demand for assets outside the traditional financial system.
Fed meeting in focus
Attention is also turning to the upcoming Federal Reserve meeting on April 28–29. Market pricing currently implies a probability above 97% that the Fed will leave its policy rate unchanged in the 3.5%–3.75% range.
Any deviation from this expectation, or a shift in tone from Chair Jerome Powell on the path of future policy, could inject new volatility into currency and digital asset markets. A more hawkish message would likely bolster the U.S. dollar further, while any hint of potential easing could relieve some of the pressure created by its recent strength.
Canadian data to guide domestic outlook
In Canada, upcoming economic releases will offer a clearer view of domestic conditions independent of energy markets.
Key data include the Consumer Price Index on April 20 and gross domestic product figures on April 30. With the Bank of Canada projecting slower growth of 1.1% for 2026, traders will be watching for any signs of softness that might weigh on the Canadian dollar even if oil prices remain firm.
Near term, the trajectory of USD/CAD is seen hinging on three main drivers: developments in the Middle East, shifts in Fed and Bank of Canada policy expectations, and the durability of the latest move higher in crude prices. Traders remain cautious, looking for confirmation that a short‑term base has formed before positioning for any sustained move in the pair.
Want to trade forex-linked crypto pairs with better tools? Explore Toobit’s advanced forex trading guide for deeper macro insights.
Disclaimer: The content on this page is provided for general informational purposes only and does not represent the views or financial advice of Toobit. We make no guarantees regarding the accuracy or completeness of this information and shall not be held liable for any errors, omissions, or outcomes resulting from its use. Investing in digital assets involves risk; users should independently evaluate their financial situation and the risks involved. For further details, please consult our Terms of Service and Risk Disclosure.
