USD/CAD Market Update

USD/CAD Rallies to 1.3864 – Friday, March 27, 2026

Current Level: Mid-1.38s (24hr range 1.3845–1.3871)

USD/CAD is trading near 1.3864 on Friday morning, gaining 37 pips from the previous session as the pair extends its advance toward the upper 1.38 range. The move comes as President Trump extended the deadline for talks with Iran by 10 days, though markets remain skeptical about meaningful progress toward de-escalation. The U.S. dollar maintains a firm tone across the G10 basket as safe-haven demand persists, with investors awaiting actions rather than words that would signal the war may be coming to an end.

Market Overview:

Risk appetite continues to decrease this morning as investors remain cautious ahead of the weekend. Equity markets are trading lower, with risk averse sentiment dominating as traders focus on the lack of concrete progress in Middle East peace efforts. The U.S. dollar is stronger across the G10 basket, with the bias toward USD strength still intact. Global bond yields remain elevated as concerns over inflation persist, with some reports suggesting that advanced economies could see inflation rise to 4 percent this year, and the U.S. possibly reaching 4.2 percent, the highest in the G7. Oil prices are higher this morning, with the energy shock continuing to support the greenback while the Strait of Hormuz remains effectively closed to normal traffic.

Trump Extends Iran Deadline, Markets Remain Skeptical:

President Trump caught markets by extending his own deadline for talks with Iran, pushing back the timeline by 10 days. There are reports that the U.S. and Iran have been engaged in indirect talks through messages relayed by mediators in Pakistan, who have noted that Tehran is considering proposals from Washington. Despite this development, yields and the USD have taken yet another leg higher as de-escalation hopes fade and general angst about an escalation over the weekend grows. The economic calendar is light today, with few data releases to mention. Risk averse sentiment may continue for the day ahead, with the bias toward U.S. dollar strength still intact.

The energy shock has essentially erased any hope for interest rate cuts this year. Concerns over inflation persist, with some reports now suggesting that advanced economies could see inflation rise to 4 percent this year, and the U.S. possibly reaching 4.2 percent, the highest in the G7. This morning, oil prices are higher and the U.S. dollar is stronger, with risk appetite continuing to decrease as investors await actions rather than words that would signal the war may be coming to an end. 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.

Iran Continues to Reject Ceasefire Proposals:

Iran continues to reject U.S. ceasefire proposals, instead demanding control over the Strait of Hormuz, reparations for war damages, and guarantees against future attacks. The U.S. is pushing for strict limits on Iran's missile program and nuclear programs in exchange for lifting sanctions. Both are dead on arrival proposals. Saudi Arabia, Qatar, and Kuwait have all reported missile and drone incidents, with growing speculation that GCC members, especially Saudi Arabia, could become directly involved in the conflict. An expanded war means a longer path to resolution and greater risk of supply disruptions from a closed Strait of Hormuz.

The market wants a path to de-escalation and right now there is none. Until the outlook improves, expect continued pressure on equities and upward momentum in interest rates and oil prices. The ongoing conflict lifts inflation expectations and break evens, pushing global bond yields higher. Equity markets are lower, with the Nasdaq 100 entering an official correction after falling more than 10 percent from its all-time high. The next critical support level sits about 5 percent lower than current price action.

Energy Prices Remain Elevated Despite Extension:

Energy prices are higher this morning, with WTI trading toward $97 per barrel as the war drags on. The primary transmission mechanism for rates and FX last week stemmed from a combination of hawkish central bank stances, rising oil prices, and broader headline driven noise. Even though President Trump has extended the energy attack deadline by 10 days, markets are on edge into the weekend. The greenback is finding firmer footing, extending gains for a third straight session as ambiguous Iran headlines revive demand for classic havens.

Price action remains choppy, but momentum has been building throughout the week. The daily chart now shows that in this tape, dips keep getting bought. Talks between Tehran and Washington remain a big question mark, and FX is not buying any off-ramp or de-escalation trade. Brent hovering around $106 a barrel caps USD downside, tying currency moves tightly to the energy market and the persistent conflict premium. At the same time, the U.S. dollar is shining as a classic safe haven for investors. With global tensions running high, many market participants are sticking to the greenback for stability.

Dollar Benefits from Structural Shift in Energy Dynamics:

There is a fundamental change in how the USD reacts to oil shocks in recent years. We are no longer seeing the traditional scenario where rising commodity prices automatically lead to a weaker American currency. This transformation comes down to a massive structural shift in the American economy. Over the last decade, the U.S. evolved from a heavy importer of energy to a net exporter. A recent Bank for International Settlements paper highlights this exact phenomenon, noting that higher commodity prices now tend to raise the U.S. terms of trade, rather than lowering them.

As war driven uncertainty reactivates haven demand, elevated oil prices reinforce petro-dollar dynamics. The energy shock in the spot market sustains a dollar bid, as needs for barrels equate demand for dollars. Unless there are clear de-risking signals, positioning into the weekend likely stays defensive. The post-Davos hate is momentarily forgotten. Compounded to safe-haven dynamics, this structural change provides fundamental support for the greenback that extends beyond typical geopolitical risk premiums.

Canada Achieves NATO Defense Spending Threshold:

Canada has achieved NATO's 2 percent defense spending threshold for the first time in more than 30 years. NATO confirmed the milestone following $63 billion in defense outlays during fiscal 2025-26. Prime Minister Mark Carney, who announced $3 billion in military base upgrades yesterday, noted that spending has reached its highest level since the fall of the Berlin Wall. The November budget committed an additional $84 billion to defense over the next five years. This represents a significant shift in Canadian fiscal policy and may have implications for the federal budget balance in coming years.

Canadian Data/Outlook:

There is no top-tier Canadian data scheduled for release today. The economic calendar remains light ahead of key events next 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: 1.3932 (October 2025 double bottom and January 2026 double top, strong congestive resistance that may attract selling interest), 1.3985 (further resistance level)
Support: 1.3856 (has reversed roles to serve as initial support after yesterday's daily close above this level), 1.3729 (support trendline, break below would neutralize recent bullish breakouts), 1.3592 (key support, daily close below would confirm a bearish trend reversal and signal the end of the corrective rally)
Outlook: Yesterday's daily close above resistance at 1.3856 sustains bullish momentum and upholds last week's range breakout above 1.3728. Focus shifts to strong congestive resistance at 1.3932, which may attract selling interest as daily indicators move into overbought territory. A break below the support trendline at 1.3729 would neutralize recent bullish breakouts. A daily close below 1.3592 would confirm a bearish trend reversal and signal the end of the corrective rally. RBC's 1 to 3 month technical target is 1.3900.

Week Ahead:

The week ahead features a heavy slate of U.S. economic data that will be critical for assessing the health of the labor market and consumer spending. Fed Chair Powell speaks on Monday, which may provide additional insight into the central bank's thinking on the inflation outlook given elevated energy prices. Canadian GDP data on Tuesday is expected to show modest growth of 0.1 percent versus 0.2 percent previously. The key focus shifts to Friday's non-farm payrolls report, with consensus expecting a rebound to 50K after last month's negative 92K print. U.S. retail sales data on Wednesday will provide insight into consumer resilience amid higher energy costs. 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 edged lower by 0.3 percent against USD yesterday as doubts grew over any swift end to the conflict in the Middle East. Both the U.S. and Iran have outlined conditions for ending the war, with little overlap. EUR/USD fell for a third straight day, with oil surging to $108 a barrel driving the latest round of selling. The pair has so far avoided a retest of the early March low at 1.1411 and has returned above 1.15, a solid support level since the post-Liberation Day trading range.
• Sterling has erased gains from earlier this week as the geopolitical backdrop turns darker again. The tepid signs of de-escalation that briefly lifted markets have faded, leaving equities under pressure, energy prices still elevated and risk appetite fragile. GBP had held up better than most G10 currencies through March, with GBP/USD down only around 1 percent versus a 2 percent plus slide in EUR/USD. That resilience was built almost entirely on the hawkish repricing in UK rates, with markets shifting from expecting cuts to pricing two BoE hikes this year.
• The Mexican peso moved toward the 18.00 level against the dollar after Banco de Mexico decided to resume its easing cycle, cutting the benchmark interest rate by 25 basis points to 6.75 percent. Coming off a hawkish pause in February, this decision highlights the board's growing concern over cooling economic growth, even as inflation remains stubborn. The currency effectively erased its gains for the year so far as the interest rate differential with the United States narrowed.
• The Japanese Yen is in focus as USDJPY approaches the make-or-break level of 160.00. A break above this level could trigger intervention concerns from Japanese authorities, though markets remain skeptical about the effectiveness of such measures given the wide interest rate differential between the U.S. and Japan.

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.