USD/CAD Market Update

USD/CAD Rallies to 1.3696 – Tuesday, March 17, 2026

Current Level: Mid-1.36s (24hr range 1.3680–1.3710)

USD/CAD is trading near 1.3696 on Tuesday morning, gaining 34 pips from the previous session as the pair edges higher toward the 1.3700 area. The move comes as markets await directional catalysts ahead of tomorrow's critical central bank meetings, with both the Bank of Canada and Federal Reserve expected to announce policy decisions. The U.S. dollar is showing modest strength across the G10 basket, while the Canadian dollar faces pressure despite elevated oil prices that continue to reflect supply concerns from the ongoing Middle East conflict.

Market Overview:

Risk appetite remains cautious this morning as traders position ahead of tomorrow's central bank meetings. Equity markets are trading mixed, with investors weighing geopolitical risks against hopes for policy clarity from major central banks. The U.S. dollar maintains a firm tone as safe-haven demand persists, though the move is muted given the light economic calendar. Global bond yields are elevated as markets reassess inflation trajectories following the recent surge in energy prices. Oil prices remain elevated near current levels due to supply constraints as the Middle East conflict continues, with reports indicating that the UK, France, Germany, and Japan have declined Trump's request to defend the Strait of Hormuz against Iranian threats.

Central Bank Meetings Dominate Week Ahead:

Today's economic calendar is light with no significant data releases expected. Key events occur tomorrow, with the Bank of Canada announcing its interest rate decision at 9:45am ET, followed by the US Federal Reserve's FOMC announcement at 2:00pm ET. Markets anticipate both central banks will hold rates steady. Looking ahead, market expectations favor a Bank of Canada rate increase and a Federal Reserve rate cut by year end, though both remain data dependent.

The Bank of Canada is expected to maintain its overnight rate at 2.25 percent, remaining comfortable at the bottom of the neutral range. However, policymakers must weigh rising energy 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.

The Federal Reserve is also expected to hold rates steady at its meeting tomorrow. Markets have effectively priced out rate cuts for the near term as geopolitical tensions and rising energy prices complicate the inflation outlook. Recent Fed minutes showed several participants supporting a two-sided description of future interest rate decisions, indicating 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.

Middle East Conflict Maintains Pressure on Energy Markets:

The global energy market continues to feel pressure as oil prices hold at elevated levels 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 Weak Employment Data:

The Canadian dollar continues to trade comfortably within the 1.3500 to 1.3700 range despite last Friday's disappointing employment numbers. The Loonie did lose some ground against the U.S. dollar following the weak jobs report, which showed a staggering loss of approximately 84,000 jobs in February. Despite that setback, the currency remains remarkably resilient overall. Thanks to surging energy prices, CAD is practically flat against the U.S. dollar since late February, outperforming battered European currencies like the Swedish Krona and the Euro.

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.

Canadian Data/Outlook:

Canada has no major economic data releases today, with the focus remaining on tomorrow's Bank of Canada policy decision. The central bank is expected to hold the overnight rate at 2.25 percent. 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, including last Friday's weak jobs report that showed a loss of 84,000 positions in February. The unemployment rate surged to 6.7 percent, with the participation rate dipping to 64.9 percent. 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 the near term as geopolitical tension has pushed the dollar higher on safe haven demand. Despite a massive growth revision showing fourth quarter GDP at just 0.7 percent, 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 percent retracement level), 1.3743 (trendline serving as key pivot for downtrend), 1.3856 (initial upside target), 1.3932 (early January double top)
Support: 1.3680 (24hr low), 1.3598 (corrective rally low), 1.3550 (1 to 3 month target), 1.3504 (2026 low), 1.3482 (2026 low)
Outlook: USD/CAD continues to gravitate toward the 1.3700 area as markets await directional catalysts. On the upside, 1.3728 remains significant resistance that has capped recent breakout attempts. A close above this level would reinvigorate upward momentum, with initial targets at 1.3856 and then 1.3932. Conversely, a close below 1.3598 is needed to restore downward pressure on the currency pair. The pair is in a three week consolidation range between 1.3482 and 1.3728, with a downtrend trendline from late November sitting just below at 1.3718. A daily close above 1.3728 would end the multi-month downtrend and resolve consolidation to the upside.

Week Ahead:

The week ahead will be dominated by a massive macro lineup of central bank meetings. The Bank of Canada and Federal Reserve both announce policy decisions on Wednesday, with both expected to hold rates steady. Thursday brings a marathon of central bank decisions including the SNB, ECB, and BoE. Despite this heavy lineup, no actual rate changes are expected at any of these meetings. 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-escalation in the Middle East will trigger a reversal toward support at 1.3598 and 1.3550.

Other Notes:

• Canada Space Strategy: The Canadian government is committing $200 million to secure a lease for a domestically owned spaceport facility. Operated by Halifax based Maritime Launch Services Inc., the launch site is situated near Canso, Nova Scotia. According to government officials, this arrangement will enable the deployment of satellites and payloads from Canadian soil, on Canadian built rockets, at Canadian run facilities. Currently, Telesat Corp., Canada's leading satellite operator, depends on Elon Musk's SpaceX for launching its advanced satellite constellation.
• China Economic Data: China's economic indicators showed an unexpected improvement prior to the Iranian conflict. Joint January February data revealed retail sales increased 2.8 percent, industrial production advanced 6.3 percent, and fixed asset investment rose 1.8 percent, all marking gains from previous periods. Yet this growth trajectory may falter as China contends with the effective shutdown of the Strait of Hormuz, with early indications of supply chain disruptions beginning to emerge.
• Post Conflict Currency Dynamics: Once the conflict reaches a resolution, a broader risk on environment and a resulting decline in oil prices should theoretically trigger an unwind of the long USD trade. In this mean reversion scenario, the hardest hit currencies are poised to be the biggest winners. Based on historical sensitivity, the Swedish Krona offers the highest beta to a retreating Greenback. Safe havens and other European currencies like the Swiss Franc and Norwegian Krone also boast high betas, while the shielded CAD would likely lag the recovery.
• Oil Supply Chain Logistics: While a diplomatic or military resolution might immediately improve broader market sentiment, restoring oil production, storage capacity, and shipping routes to pre conflict levels is a complex logistical hurdle that could take weeks, if not months. Because of this, a significant conflict premium could remain stubbornly embedded in oil prices well beyond the actual cessation of hostilities. Consequently, while the ultimate unwinding of the long USD position remains the most likely endgame, the transition may be a grad

  Market Mood:

  RSI (14):

  53.1

  Neutral territory

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

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  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.