USD/CAD Market Update

USD/CAD Surges to 1.3791 – Wednesday, March 25, 2026

Current Level: Upper-1.37s (24hr range 1.3750–1.3800)

USD/CAD is trading near 1.3791 on Wednesday morning, gaining 50 pips from the previous session as the pair advances toward the 1.38 level. The move comes as markets react to mixed signals on Middle East peace efforts, with cautious optimism emerging around a reported U.S. peace initiative while Iranian leadership dismisses reports of active negotiations. The U.S. dollar maintains a firm tone across the G10 basket as markets reprice interest rate expectations away from cuts and toward potential hikes, driven by inflation concerns stemming from elevated oil prices.

Market Overview:

Risk sentiment remains choppy this morning as traders assess conflicting headlines from the Middle East. Equity markets show mixed performance as cautious optimism around peace efforts competes with ongoing concerns about energy supply disruptions. The U.S. dollar shows strength across major currency pairs as markets adjust rate expectations, with traders now pricing in the possibility of rate hikes rather than cuts due to persistent inflation pressures. Global bond yields remain elevated as central banks signal stricter language to prevent runaway prices. Oil prices hold near current levels despite peace initiative reports, as the Strait of Hormuz remains largely closed and missile and drone strikes targeting Israel and Gulf Arab nations continue.

Peace Initiative Sparks Cautious Optimism:

Cautious optimism emerged overnight around reports of a 15-point U.S. peace initiative aimed at reducing tensions in the Middle East. According to Pakistani officials, the proposal centers on reducing Iran's nuclear and missile arsenals while restoring shipping through the Strait of Hormuz. However, Iranian leadership has dismissed reports of active negotiations and has not yet responded to the proposal. Meanwhile, missile and drone strikes targeting Israel and Gulf Arab nations continue, limiting the market's willingness to price in a meaningful de-escalation.

The energy crisis extends beyond temporary disruption, according to the International Energy Agency. Iranian maritime threats in response to U.S. and Israeli strikes have disrupted critical shipping lanes, creating bottlenecks that impact vital commodities including fertilizers, petrochemicals, and sulfur. These supply chain interruptions affect essential materials for manufacturing, textiles, and farming. In response, IEA member countries have authorized the deployment of 400 million barrels from strategic oil reserves, equivalent to one-fifth of their total stockpiles.

Markets Reprice Toward Rate Hikes:

USD/CAD is firmer this morning, pushing toward the 1.38 level as concerns about inflation stemming from elevated oil prices prompt markets to reprice away from rate cuts and toward potential U.S. rate hikes. Traders have already adjusted to this hawkish tone and have completely erased their previous expectations for Federal Reserve interest rate cuts in 2026. The financial landscape is growing increasingly tense as strict monetary policies clash with slowing economic growth and the unresolved threat to shipping lanes like the Strait of Hormuz.

The energy shock has essentially erased any hope for interest rate cuts this year. Investors are steadily stepping back from risky assets because they worry central banks might push economies too hard while energy prices stay stubbornly high. If these tight financial conditions and supply issues persist, the world faces a significantly higher risk of sliding into stagflation or a broader global recession. Initial resistance for USD/CAD sits at 1.3856, with further levels at 1.3932 and 1.3985. On the downside, a close below 1.3686 would neutralize the recent bullish breakout above 1.3728.

Canada Pushes to Increase Natural Gas Shipments:

Canada is pushing to increase natural gas shipments to the U.S. Energy Minister Tim Hodgson said he had a productive conversation with U.S. Energy Secretary Chris Wright on boosting gas flows, with a focus on supporting LNG exports from the Gulf Coast. Canada currently exports roughly 8 billion cubic feet per day to the U.S., which underpins American LNG shipments of 20 billion cubic feet per day to Asia and Europe. Hodgson also noted that Canada is taking all necessary measures to maintain oil flows amid the ongoing conflict.

Air traffic control staffing is among the issues being investigated following the Air Canada Express crash. Canadian pilots Antoine Forest and Mackenzie Gunther were killed when the passenger jet carrying 76 passengers and crew struck an emergency vehicle on the runway. Only two controllers were staffing the tower overnight, handling multiple roles including ground and local control. The U.S. National Transportation Safety Board said this is typical for midnight shifts, though concerns about workload and fatigue persist. There have been 26 runway incidents in the U.S. over the past five years.

Canadian Data/Outlook:

There is no top-tier Canadian data scheduled for release today. The economic calendar remains light ahead of key events later this week. The Bank of Canada is expected to hold its overnight rate at 2.25 percent at the upcoming April 29 meeting. RBC forecasts the BoC overnight rate to remain at 2.25 percent through all of 2026. The central bank is comfortable at the bottom of the neutral range, though policymakers must weigh rising energy costs against domestic economic struggles. The Bank has emphasized that it will look through the immediate impact of the war on inflation, but if energy prices stay high, the Bank will not let their effects broaden and become persistent. 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 hold rates at 3.75 percent at its next policy meeting on April 29. Markets have completely priced out any rate cuts for 2026 as the energy 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. Recent market repricing shows traders have erased all expectations for Federal Reserve interest rate cuts this year. RBC expects the Fed Funds rate will remain at the current 3.50 to 3.75 percent range through 2026. The firm hawkish lean may have been overdone, as the U.S. continues to grapple with a soft labor market while activity and consumption are likely to dampen as inflationary pressures from the conflict build. The outcome may be a temporary high-inflation phase met by a softening macro backdrop, ultimately warranting cuts later in the year, a combination that would add renewed pressure on the greenback.

Technical Picture:

Resistance: 1.3856 (initial upside target following last week's breakout), 1.3932 (early January double top, strong resistance level), 1.3985 (further resistance level)
Support: 1.3728 (now acts as initial support after last week's breakout), 1.3686 (trendline off recent lows, close below would neutralize bullish setup), 1.3584 (key support underpinning current rally, break below would end corrective rally and reassert broader downtrend)
Outlook: Last week's close above 1.3728 was technically significant, ending the downtrend from late November and resolving a consolidation phase to the upside, nullifying a potential triple top. The breakout shifts focus to 1.3856, then strong resistance at 1.3932. Follow-through is needed to sustain the move, as the response has been muted so far. RBC's one to three month target is now 1.3900. A daily close below 1.3686 would neutralize the bullish setup, while a break below 1.3584 would end the corrective rally and reassert the broader downtrend.

Week Ahead:

The week ahead features UK CPI data today, which landed exactly in line with expectations at 3.0 percent year over year, though services inflation came in slightly hotter than forecast. U.S. unemployment claims are due Thursday, with consensus expecting 211K versus the previous 205K. The key focus shifts to next week with Canadian GDP data on Tuesday and a heavy slate of U.S. data on Wednesday and Friday, including retail sales, ISM Manufacturing PMI, and the critical non-farm payrolls report. The upcoming Bank of Canada and Federal Reserve meetings on April 29 remain the next major policy events for the currency pair.

Other Notes:

• The euro remains under pressure from energy vulnerability, with EUR/USD showing limited conviction in its recent rebound from six-month lows near 1.14. Markets are pricing almost two full 25 basis point hikes from the ECB, though FX sensitivity to rate differentials has deteriorated sharply since the conflict began.
• Sterling has rebounded against the dollar as the aggressive repricing in UK yields supports GBP against European currencies. The Bank of England faces a difficult balancing act between a softening domestic economy and an external inflation shock that the Bank cannot ignore.
• S&P PMIs showed U.S. business activity slowing in March to an almost one-year low, with the Composite PMI slipping to 51.4 from 51.9 and Services to 51.1 from 51.7. Manufacturing remained more resilient, rising to 52.4 from 51.6. The low-growth, high-price backdrop mirrors other economies' recent PMI releases, pointing to a more synchronized stagflationary shift amid the ongoing conflict.
• The dollar index remains supported by the 21-day moving average at 99.090, signaling intact short-term bullish momentum and a market still demanding more on the diplomatic front. Yet with oil hovering near $100 a barrel, the dollar has struggled to find fresh fuel since hitting a one-year high of 100.540 on March 13.

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.