USD/CAD Market Update

USD/CAD Rallies to 1.3827 – Thursday, March 26, 2026

Current Level: Mid-1.38s (24hr range 1.3815–1.3849)

USD/CAD is trading near 1.3827 on Thursday morning, gaining 36 pips from the previous session as the pair extends its advance toward the 1.38 level. The move comes as geopolitical tensions in the Middle East escalate further, with reports that Saudi Arabia and the United Arab Emirates are considering military action against Iran. Markets remain skeptical about near-term de-escalation prospects after Iran publicly rejected Washington's reported 15-point peace proposal and denied that any negotiations are taking place. The U.S. dollar maintains a firm tone across the G10 basket as safe-haven flows persist, while the Canadian dollar faces pressure despite elevated oil prices that continue to reflect supply concerns from the ongoing conflict.

Market Overview:

Risk appetite remains negative this morning as traders question the ceasefire plan that emerged yesterday. Equity markets opened lower as investors reassess the prospects for de-escalation following Iran's public rejection of the U.S. proposal. The U.S. dollar shows strength across major currency pairs as safe-haven demand returns, supported by ongoing concerns about supply and demand disruptions from the Strait of Hormuz closures. Global bond yields are higher as negative headlines out of Iran weigh on sentiment. Oil prices are climbing back toward the $93 per barrel handle for WTI following yesterday's sharp decline, as markets recognize that the conflict may persist longer than initially hoped. The OECD released updated inflation projections for the G-20 showing CPI 1.2 percent higher than prior forecasts, reflecting the impact of elevated energy prices.

Iran Rejects Peace Proposal, Regional Powers Consider Action:

Markets are questioning the ceasefire plan after the speaker of the Iranian Parliament suggested yesterday's de-escalation story was inaccurate. Iran publicly rejected Washington's reported 15-point proposal and issued its own set of conditions, including no more attacks from the U.S. or Israel, control over the Strait of Hormuz, and reparations for war damages up to a trillion dollars. These terms are highly unlikely to be accepted as presented, leaving both sides' positions effectively unworkable. Market odds of a ceasefire by the end of March sit at just 14 percent, reflecting deep skepticism about near-term resolution prospects.

The situation escalated further with reports that Saudi Arabia and the United Arab Emirates are considering military action against Iran. The potential for regional powers to join the conflict represents a significant expansion that could broaden, deepen, and extend the military crisis and its associated economic disruption. Military strikes continue in the region as Tehran publicly rejects peace talks. Iran's conditions demonstrate the regime's leverage over global energy markets through its control of the Strait of Hormuz, which remains effectively closed to normal traffic.

Energy Crisis Deepens with Long-Term Supply Concerns:

Concerns are mounting that supply and demand disruptions from the Strait of Hormuz closures will meaningfully impact growth and boost inflation. The OECD released updated inflation projections for the G-20 showing CPI 1.2 percent higher than prior forecasts, reflecting the sustained impact of elevated energy prices. The energy crisis extends beyond temporary disruption, with Iranian maritime threats disrupting critical shipping lanes and creating bottlenecks that impact vital commodities including fertilizers, petrochemicals, and sulfur. These supply chain interruptions affect essential materials for manufacturing, textiles, and farming.

Oil prices are higher this morning, with WTI climbing back to the $93 per barrel handle following yesterday's declines. The rebound reflects market recognition that the conflict may persist longer than initially anticipated. Brent crude is again above $100 per barrel, hovering around $106, marking its most significant monthly gain in decades. American gasoline prices edge closer to the $4 mark. The Iranian parliament is drafting laws to charge ships for safe passage, further complicating international maritime trade. Countries across the Asia-Pacific region are taking drastic measures like releasing national oil reserves or cutting fuel subsidies in response to soaring costs and dwindling supplies.

Markets Reprice Away from Rate Cuts:

The energy shock has essentially erased any hope for interest rate cuts this year. Sentiment has flipped back to fear from yesterday's brief period of optimism. Investors are steadily stepping back from risky assets because they worry central banks might maintain restrictive policies while energy prices stay stubbornly high. The Trump administration is reportedly modeling extreme scenarios where oil could potentially hit $200 per barrel, reflecting deep concerns about the long-term damage this stalemate could inflict on the global economy. 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.

For equities, the S&P 500 is nearing a key support level at the 76.4 percent Fibonacci retracement of the Liberation Day low to all-time high. Should this break, the next major support sits at the 61.8 percent Fibonacci level, which coincides with the pre-Liberation Day record high. The S&P 500 has struggled to commit to a direction for more than three days at a time, staying in back-and-forth mode during March. Tomorrow ends the five-day negotiating window, and markets positioning ahead of the weekend is poised for another risk-aversion session as investors wait on the sidelines to get a clearer direction beyond the next headline.

Canadian Dollar Pressured by Domestic Weakness:

The Loonie's descent to a two-month low suggests that internal economic deceleration is now weighing more heavily on the currency than the support typically provided by favorable terms of trade in energy. Following a cautious tone from the Bank of Canada last week, investors have turned the focus back to a sluggish labor market and economic macro figures that have missed projections. This fundamental weakness is being compounded by bearish sentiment in the futures market, where leveraged funds have flipped to a net-short position on the Loonie, signaling skepticism about a smooth economic transition as financial conditions tighten.

Further pressure stems from geopolitical and trade-related uncertainties. While elevated energy prices are currently the primary pillar of support for the CAD, this makes the currency highly vulnerable to any de-escalation in Middle East tensions. Additionally, the lack of progress in the USMCA renegotiation process ahead of its July 1 renewal marker introduces a layer of political risk, leaving the Loonie struggling to find firm footing against a stronger Greenback. USD/CAD is trading in the low-1.38s, hitting its highest level since January 26 after clearing the 200-day moving average.

Euro Faces Energy Shock Headwinds:

The euro is trading with a heavier tone as the Middle East conflict feeds directly into Europe's macro outlook. EUR/USD has repeatedly failed at its 21-day moving average, which continues to roll over, signaling that rallies are still being sold rather than built upon. The broader backdrop is turning more challenging. The latest Ifo survey underscored how quickly sentiment has deteriorated, with the headline index falling to 86.4 from 88.4. Expectations suffered their sharpest drop since Russia's invasion of Ukraine, falling to 86.0 from 90.2. Germany's long-awaited cyclical upswing has not been derailed, but it has clearly been delayed.

Energy security is now the dominant theme. European gas storage is unusually depleted for March. Dutch facilities are only 6 percent full, Germany sits near 22 percent, and the closure of the Strait of Hormuz for more than three weeks has kept large volumes of gas off the global market. Italy and Spain are already scrambling to secure additional North African supply, while Brussels has urged member states to begin refilling storage early to avoid a summer price spike. President Lagarde stressed that the ECB will act decisively and swiftly if the energy shock risks a broader inflation overshoot. Markets continue to price a meaningful chance of an April hike and almost three hikes in total by year end. For EUR/USD, the currency remains trapped between a more vigilant ECB and a worsening terms of trade shock, with upside limited around the $1.16 mark.

Sterling Faces Growth and Inflation Pressures:

Bank of England rate setter Megan Greene spoke at a panel event in London yesterday, striking firmly hawkish remarks as she pointed to the conflict's lasting effects on UK inflation, even in a best case scenario where tensions in the Middle East de-escalate swiftly. She stressed that her inflation concerns outweigh those on growth, while also acknowledging that there is now more slack in the economy and therefore greater downside risk to demand compared with 2022. Her comments did little to halt the market's unwinding of tightening expectations on renewed hopes of de-escalation. Her emphasis on growth risks may have resonated more with markets, and the move lower across the yield curve likely reflected a shift in the market's fear barometer toward growth rather than inflation. The UK macro backdrop remains stagnant, with a softening labour market feeding a sharper hawkish unwind whenever a de-escalation window opens.

Mexican Peso Faces Uncertainty Ahead of Banxico:

The ongoing dispute in the Middle East is creating a fragile environment for global markets, and Mexico is feeling the pressure. Hopes for a quick diplomatic fix faded after officials in Tehran rejected claims of active peace negotiations. The situation looks increasingly serious as neighboring nations consider stepping into the battlefield. Market participants are rushing to buy insurance against a sudden currency drop, pushing the cost of these protective strategies to levels not seen in nearly 24 months. Domestically, the picture is not offering much support for the currency. Recent numbers revealed an unexpected shrinking in national output at the start of the year, mostly dragged down by a struggling manufacturing sector. Ahead of the Banxico meeting today, markets are expecting the central bank to keep its interest rate unchanged to fight off new inflation threats coming from the energy shock. Markets will be keeping high attention to forward guidance and whether there is any change in monetary policy posture given the mix of inflation threats and unimpressive recent macro data.

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. 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. 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. The one to three month target is now 1.3850 to 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 U.S. unemployment claims today, with consensus expecting 211K versus the previous 205K. UK retail sales are due Friday, with forecasts calling for a decline of 0.6 percent versus the previous 1.8 percent gain.

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.