USD/CAD Market Update

USD/CAD Market Update – Wednesday, March 18, 2026

Current Level: Mid-1.37s (24hr range 1.3687–1.3724)

USD/CAD is trading near 1.3704 on Wednesday morning, gaining 8 pips from the previous session as the pair holds steady in the mid-1.37 range. The move comes as markets position ahead of today's critical central bank meetings, with both the Federal Reserve and Bank of Canada expected to announce policy decisions. The U.S. dollar maintains a firm tone as safe-haven demand persists amid ongoing geopolitical tensions in the Middle East, while the Canadian dollar faces pressure despite elevated oil prices that continue to reflect supply concerns from the conflict.

Market Overview:

Risk appetite remains cautious this morning as traders position ahead of a heavy lineup of central bank meetings. Equity markets are trading mixed, with investors weighing persistent geopolitical risks against hopes for policy clarity from major central banks. The U.S. dollar shows modest strength across the G10 basket as safe-haven flows continue, though the move is muted given the light economic calendar ahead of the Fed decision. Global bond yields are elevated as markets reassess inflation trajectories following the recent surge in energy prices. Oil prices remain elevated above $100 per barrel as the U.S. conflict with Iran continues to disrupt supply flows through the Strait of Hormuz, keeping energy supply concerns front and center for currency markets.

Central Bank Super Wednesday Takes Center Stage:

Today brings a critical lineup of central bank decisions, with the Bank of Canada announcing its interest rate decision at 9:45am ET, followed by the Federal Reserve's FOMC announcement at 2:00pm ET. Markets expect both central banks to hold rates steady. The Bank of Canada is anticipated 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, including last Friday's weak jobs report showing a loss of 84,000 positions in February. The combination of cooling headline inflation and labor market softness suggests the Bank 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 today. Markets have effectively priced out rate cuts for the near term as geopolitical tensions and rising energy prices complicate the inflation outlook. The Fed will release updated economic projections, and any shift in core and growth forecasts will signal how much of the oil shock policymakers see as persistent. The baseline expectation points to a hold with tougher language. The Committee will likely reiterate that energy-driven headline bumps warrant vigilance, but decisions hinge on breadth and pass-through to core, wages, and expectations. If the disruption eases, the Fed can stick to a path that keeps policy restrictive enough to secure 2 percent over time. If the shock persists and inflation expectations drift, the bar for renewed tightening falls.

Fed's Oil Shock Playbook: Watch Core, Not Headlines:

The Fed's template for oil shocks is clear: guard inflation expectations while avoiding overreacting to volatile energy prices. In practice, that means watching whether higher gasoline and diesel feed through to core inflation and wages, not just headline CPI. This approach sits inside the Fed's 2020 framework shift to average inflation targeting, which tolerates temporary overshoots if expectations stay anchored. History backs the playbook. In 2008, when crude first surged and then collapsed during the financial crisis, the Fed cut rates to the effective lower bound and deployed balance sheet tools as growth and stability risks dominated. When Russia invaded Ukraine in 2022 and oil jumped, liftoff still began in March with a 25 basis point hike, and communication acknowledged energy as an inflation risk while keeping the focus on broader persistence.

Today's context adds a tougher oil shock. The U.S. conflict with Iran and the effective chokepoint at the Strait of Hormuz have pushed Brent above $100 and introduced what the IEA calls the largest supply disruption on record. Today's FOMC meeting brings an updated Summary of Economic Projections, so any shift in core and growth projections will signal how much of this shock they see as persistent. Against this backdrop, while markets push out 2026 rate cut hopes, the dollar's resilience should keep coming from a safe-haven and terms of trade bid, meaning that the bar for a decisive USD downtrend is de-escalation and visible normalization of physical oil flows. The Fed's communication today can reinforce that staging by acknowledging the oil shock, insisting on data-validated persistence before changing the policy rate, and letting the dots reflect a slower disinflation if pass-through broadens.

Bank of Canada Faces Two-Sided Oil Test:

The Bank of Canada's record shows a flexible, two-sided response to oil moves: ease on sustained collapses that hit growth and lean against persistence when price pressures risk entrenchment. In January 2015, the Bank delivered a surprise 25 basis point cut as the oil slump threatened activity and inflation. The current shock cuts both ways for Canada. Higher crude supports national income and royalties, yet it also squeezes households through fuel and food, so the net macro impact depends on duration and pass-through. The global picture is severe: the IEA describes unprecedented disruption around Hormuz, which amplifies price volatility and complicates the forecast.

Into today's decision, the policy rate sits at 2.25 percent and markets expect a hold. The likely message is steady policy with a firmer warning on upside inflation risks from energy, paired with a reminder that the Bank will adjust if core pressures broaden or expectations drift. If the oil shock proves brief, the control range and flexible horizon allow the Bank to tolerate a temporary headline bump while monitoring real income effects and credit conditions. If disruption endures, guidance can tighten quickly, but as in past episodes the Bank will seek evidence of persistence before changing course. For the scheduled press conference, markets should expect Governor Macklem to acknowledge the oil shock, potentially show scenario analysis, and keep the 2 percent anchor front and center while Canada's two-sided oil exposure plays through.

CAD Exceptionalism Challenged Amid Broad USD Strength:

The notion of CAD exceptionalism, with oil support cushioning the Loonie, should be challenged amid broad USD strength and softer domestic data. Even a de-escalation-driven risk-on turn would likely see CAD lag higher-beta G10 rebounders once the conflict premium fades. That view aligns with a BoC hold at 2.25 percent and guidance that tolerates a temporary headline bump while stressing that any policy shift hinges on core breadth and expectations, not the crude tape, keeping near-term USD/CAD choppy and headline-driven. In practice, CAD should keep tracking oil headlines but stay range-bound if the Bank maintains a measured hold and the market continues to reward the dollar's geopolitical role. Only when supply lanes normalize and domestic data improve should the mean-reversion map translate into more durable CAD gains.

The Canadian dollar continues to trade comfortably within the 1.35 to 1.37 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.

EUR Recovery Lacks Conviction:

The euro extended Monday's rebound yesterday, edging further away from its six-month low near $1.14, but the move still looks fragile. Without progress on ceasefire talks or clearer NATO coordination around securing Hormuz, EUR/USD's recovery risks stalling. With a heavy run of central bank meetings ahead, the downside bias may re-emerge quickly. The ECB is widely expected to stay on hold this week. The macro backdrop is very different from the 2022 energy crisis: inflation is at target, growth is subdued, and the latest shock is driven by geopolitics rather than domestic overheating. Even so, the council faces a more complicated landscape than at the previous meeting.

The surge in energy prices tied to the conflict raises the likelihood that inflation drifts above 2 percent in 2026, but the duration of supply disruptions and the scale of second-round effects remain highly uncertain. That uncertainty is precisely why a pre-emptive hike is off the table. Volatility is too high, the shock is assumed to be temporary, and the ECB will argue for more data before committing to any shift in stance. Still, the tone is likely to harden. Policymakers will acknowledge that rate hikes are now more plausible than cuts and warn that persistent energy disruptions or signs of wage-price spillovers could warrant a policy response. For EUR/USD, the combined weight of the Fed and ECB meetings keeps risks tilted lower this week, especially given Europe remains more exposed to the terms of trade shock. Unless the Gulf backdrop improves, the pair could re-test $1.14. A weekly close below this level could expose $1.12 as the next key downside target.

GBP: Oil Rebound Complicates BoE's Path to Target:

Sterling has closed higher against the dollar for a second straight session, supported by tentative optimism after reports of isolated vessels transiting the Strait of Hormuz with Iran's permission. Meanwhile, Iraq has begun redirecting crude through alternative routes to offset the disruption, helping keep oil anchored near $100 a barrel. The geopolitical backdrop is feeding an increasingly two-sided risk profile the BoE will be acutely aware of going into tomorrow's policy meeting. On one side, inflation, previously expected to return to target by April, is now likely to face renewed upward pressure as the conflict pushes oil and gas prices higher. On the other, a softening labour market that would benefit from a less restrictive rate environment.

Continued easing across gilt yields for a third straight day signals the growing proximity to the Bank's policy decision, reflecting a shift that better captures the two-sided risk profile and moves away from the earlier, more knee-jerk one-sided tightening bias driven by the conflict's inflationary impact. But the easing in rates also reflects a market that, even as the conflict rages on, has shifted its focus almost exclusively to tanker passage through the Strait. Reports that Iran may be selectively allowing vessels through have calmed nerves, with markets reading the current shock as more temporary than structural. For the UK specifically, these whipsaw moves have been particularly sharp. Brent crude is the primary benchmark for oil pricing in the Atlantic Basin and is closely linked to North Sea production.

Canadian Data/Outlook:

Canada has no major economic data releases today, with the focus remaining on the Bank of Canada policy decision at 9:45am ET. 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 policy meeting today at 2:00pm ET. 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. Today's updated Summary of Economic Projections will be closely watched for any shift in the Fed's inflation and growth forecasts.

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: 1.3687 (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: