USD/CAD Market Update

USD/CAD Slides to 1.3662 – Monday, March 16, 2026

Current Level: Mid-1.36s (24hr range 1.3653–1.3723)

USD/CAD is trading near 1.3662 on Monday morning, declining 27 pips from the previous session as the pair retreats in the mid-1.36 range. The move comes as markets digest Canada's February inflation report showing headline CPI at 1.9%, slightly above the 1.8% consensus but down from January's 2.3% pace. The U.S. dollar is showing mixed performance across the G10 basket as geopolitical tensions in the Middle East continue to support safe-haven demand, while the Canadian dollar faces pressure from cooling headline inflation despite elevated energy prices.

Market Overview:

Risk appetite remains cautious this morning as traders assess the ongoing Middle East conflict and its impact on global energy markets. Equity markets are trading mixed, with investors weighing persistent geopolitical risks against hopes for eventual de-escalation. The U.S. dollar maintains a firm tone as safe-haven flows continue, with the DXY index holding above the 100 level reached last week. Global bond yields are elevated as markets reassess inflation trajectories following the recent surge in energy prices. Brent crude remains near $106 per barrel after recent U.S. strikes on Iran's Kharg Island export hub, keeping energy supply concerns front and center for currency markets.

Canadian Inflation Cools Ahead of Bank of Canada Meeting:

Canada's headline inflation came in at 1.9% year over year for February, slightly beating the 1.8% estimate but showing a clear drop from January's 2.3% pace. The slowdown largely reflects a base year effect tied to the end of last year's GST and HST tax breaks. Core inflation measures paint a different picture, with the median and trim settling at 2.4% and 2.3% respectively. These numbers show that underlying price pressures are steadily cooling across the broader economy, though they remain above the Bank of Canada's 2% target.

The inflation report does not change the immediate policy outlook ahead of Wednesday's Bank of Canada meeting. Markets anticipate one rate hike by October of this year, pricing driven mostly by the recent surge in gas prices and energy concerns. However, policymakers must weigh these rising costs against domestic economic struggles. Last Friday delivered a weak jobs report, which strongly supports a cautious approach from the central bank this week. The combination of cooling headline inflation and labor market softness suggests the Bank of Canada will maintain its current stance while monitoring the energy price shock from the Iran conflict.

Middle East Conflict Dominates Energy Markets:

The global energy market continues to feel pressure as Brent crude holds at $106 per barrel following recent U.S. strikes on military targets at Iran's Kharg Island export hub. This marks a significant shift from earlier reports suggesting these facilities were not a top priority, sending a clear message to Tehran about the risks of interfering with the Strait of Hormuz. Despite the chaos, there was a small win for supply chains as loading operations at the UAE's Fujairah port resumed this past Sunday after a drone strike and fire caused a temporary shutdown.

Last week, the International Energy Agency attempted to ease market panic with a coordinated release of 400 million barrels from strategic reserves. However, the market views this as a temporary measure that does not address the core issue of 18 million barrels of daily physical supply trapped in the region. The terms of trade have reclaimed the driver's seat in foreign exchange markets, dictating currency performance more forcefully than traditional macro fundamentals. The timeline for the conflict is becoming a major focus for the White House, with Kevin Hassett suggesting the war could last anywhere from four to six weeks.

Diplomatic Efforts Show Mixed Signals:

While the military posture stays aggressive, diplomatic signals are getting confusing. President Trump recently claimed that Iran is practically ready to make a deal, though the U.S. is still pushing for better terms before signing anything. However, Iranian Foreign Minister Abbas Araghchi has been quick to push back on this narrative, insisting that Tehran has not asked for a ceasefire or any formal talks at all. European nations are growing increasingly frantic about the structural shortfall in their energy systems, with countries like France and Italy initiating backchannel discussions with Tehran in a desperate bid to secure safe transit for their vessels.

To help manage the burden of keeping trade routes open, President Trump is pressuring allies and rivals alike, including NATO members, China, Japan, and South Korea, to send warships to the region. The goal is a coordinated international effort to secure the waterway while the Pentagon threatens even broader attacks on energy infrastructure if the regional gridlock continues. Until these fractured diplomatic efforts or the sheer economic costs finally crack the deadlock and reopen the vital waterway, the global economy will remain caught in a tug of war between lackluster domestic growth and a blistering conflict premium.

Canadian Dollar Resilience Despite Inflation Slowdown:

The Canadian dollar continues to trade comfortably within the 1.35 to 1.37 range despite the softer headline inflation print. The Loonie did lose some ground against the U.S. dollar on Friday after disappointing employment numbers came out. Despite that minor setback, the currency remains remarkably resilient overall. Thanks to rising crude prices, the CAD is still outperforming its G10 peers following the recent start of the U.S.-Iran conflict. The fact that the Canadian dollar held its ground during recent risk-off periods highlights how much the market values energy independence in the current environment.

The Canadian dollar continues to outperform the euro and pound on a relative basis, with EUR/CAD and GBP/CAD trading near multi-month lows. This market behavior reflects the split between oil exporters and oil importers, with exporters showing relative strength even as headline inflation cools. The durability of this support depends on whether oil prices stabilize at current levels or continue to climb if the Middle East conflict drags on.

Euro Under Pressure from Energy Vulnerability:

The euro remains under pressure as markets continue to price the Middle East conflict through two dominant channels: a broad risk off tone and another surge in oil and gas. EUR/USD is down around 3% since the crisis began, now hovering just above $1.14 after cutting through every major daily moving average. The earlier boost from rising U.S. risk premia has faded as Europe's energy vulnerability is back in the driver's seat. The pattern is familiar: when Europe's competitiveness deteriorates sharply, as it did during the Ukraine shock, the euro struggles regardless of how hawkish the ECB turns.

The ECB is widely expected to hold rates this week while signaling flexibility should energy disruptions deepen, but policy nuance is secondary. Until there is a credible path to restoring energy flows, geopolitics, not rate spreads, will dictate EUR price action. Peripheral spreads are also widening after being squeezed to unusually tight levels earlier in the year. That looks like deleveraging for now, but investors will be watching how governments respond to the energy shock and what that means for fiscal trajectories.

Sterling Faces Selective Pressure:

Sterling's more selective bearishness was challenged on Friday after monthly GDP figures showed no growth for January, while industrial production dipped 0.1%. The soft backdrop triggered broader selloffs in the currency. Since the start of the conflict on February 28, however, sterling has still shown greater resilience than the euro, which has come under more widespread pressure, trading 1.5% lower against the pound on a month to date basis. The BoE's core challenge has been sticky inflation, and its recent dovish tilt hinges entirely on a sharp disinflation trend expected to bring inflation to 2% by April. With the conflict now threatening that delicate backdrop, rate sensitivity to surging oil prices becomes particularly acute.

Canadian Data/Outlook:

Canada's February inflation data showed headline CPI at 1.9% year over year, slightly above the 1.8% consensus but down from January's 2.3%. Core measures including median CPI at 2.4% and trimmed CPI at 2.3% indicate underlying price pressures remain elevated but are cooling. The Bank of Canada meets this Wednesday and is expected to hold the overnight rate at 2.25%. Markets anticipate one rate hike by October of this year, though this pricing is mostly driven by the recent surge in gas prices and energy concerns. However, policymakers must weigh these rising costs against domestic economic struggles, including last Friday's weak jobs report. With USMCA negotiations approaching, the Canadian dollar remains vulnerable to weakness should tensions with the United States escalate, though elevated oil prices have provided offsetting support in recent sessions.

Fed Watch:

The Federal Reserve is expected to remain on hold at its next policy meeting on March 18. Markets have officially priced out any rate cuts for 2026 as geopolitical tension has pushed the DXY index past the 100 barrier on safe haven bid. Despite a massive growth revision showing fourth quarter GDP at just 0.7%, the resilient dollar sets a tense stage for this week's central bank meetings. Recent Fed minutes skewed decidedly hawkish, with several participants supporting a two-sided description of future interest rate decisions. This indicates that if inflation remains at above target levels, the Fed is prepared to consider upward adjustments to the target range for the federal funds rate. The oil price shock from the Iran conflict adds a dimension to the Fed's inflation challenge that may force the central bank to remain restrictive even as growth weakens.

Technical Picture:

Resistance: 1.3728 (has capped rallies on three occasions, marking 61.8% retracement level), 1.3743 (trendline serving as key pivot for downtrend), 1.3800 (psychological level)
Support: 1.3653 (24hr low), 1.3550 (1 to 3 month target), 1.3504 (January lows), 1.3482 (January lows), 1.3420 (September 2024 low)
Outlook: The pair continues to trade within the established 1.35 to 1.37 range, with resistance at 1.3728 capping recent rallies. A break above this level would open the path toward 1.3743, where a trendline serves as the key pivot for the downtrend in place since late November. Support sits at 1.3653, with deeper levels at 1.3550 and 1.3504. The bearish view remains intact unless a daily close above 1.3743 occurs. Current price action suggests the pair is consolidating in the mid-1.36s, with the duration of the Middle East conflict likely to determine whether resistance levels hold or give way.

Week Ahead:

The week ahead will be dominated by a massive macro lineup of central bank meetings. The RBA meets Tuesday and is expected to hike for a second consecutive meeting. The Fed and Bank of Canada follow Wednesday, with both expected to hold rates steady. Thursday brings a marathon of central bank decisions including the BoJ, ECB, BoE, and SNB. Despite this heavy lineup, no actual rate changes are expected at any of these meetings except for the Reserve Bank of Australia. Markets will focus entirely on the tone of policy statements and any shift in guidance given the recent inflation shock from higher energy prices. For USD/CAD, the immediate question is whether geopolitical tensions will continue to support the dollar and push the pair toward resistance at 1.3728 and 1.3743, or if a credible de-escal

Market Mood:

RSI Scale: <30 Oversold | 30-40 Risk-Off | 40-60 Neutral | 60-70 Risk-On | >70 Overbought

This commentary is provided for informational purposes only and should not be construed as investment, legal, or tax advice. Past performance is not indicative of future results. Please consult with qualified professionals before making any financial decisions. Vantry Capital Inc.