USD/CAD Market Update

USD/CAD Surges to 1.3921 – Monday, March 30, 2026

Current Level: Low-1.39s (24hr range 1.3886–1.3942)

USD/CAD is trading near 1.3921 on Monday morning, gaining 57 pips from the previous session as the pair extends its advance following last week's technical breakout. The move comes as President Trump repeated threats to destroy Iranian energy assets if the Strait of Hormuz is not reopened soon, with U.S. troops arriving in the region. Iran-backed Houthi militants launched attacks on Israel for the first time since the war began, raising concerns they could resume targeting ships in the Red Sea. The U.S. dollar maintains a firm tone across the G10 basket as safe-haven flows persist, while elevated oil prices continue to reflect supply concerns from the ongoing conflict.

Market Overview:

Risk appetite has declined this morning as Middle East tensions escalate rather than wind down, supporting a stronger U.S. dollar. Equity markets are trading lower as investors reassess the prospects for de-escalation following the weekend's intensification of rhetoric and military activity. The U.S. dollar shows strength across major currency pairs as safe-haven demand returns, supported by ongoing concerns about supply disruptions from the Strait of Hormuz closures. Global bond yields remain elevated as markets recognize that the conflict may persist longer than initially hoped. Oil prices hold near current levels with WTI trading above $100 per barrel, reflecting the continued supply concerns and the energy shock's impact on global economic growth prospects.

Trump Escalates Iran Rhetoric as De-Escalation Hopes Fade:

President Trump repeated threats over the weekend to completely destroy Iranian energy infrastructure if the Strait of Hormuz is not reopened soon, warning he will "blow up and completely obliterate" all of Iran's electric generating plants, oil wells, and Kharg Island. This comes as U.S. troops arrive in the region, with Iran accusing the United States of planning a ground invasion. The escalation in rhetoric follows last week's brief period of optimism around a potential ceasefire, which has now dissipated as both sides harden their positions.

Iran-backed Houthi militants in Yemen launched attacks on Israel for the first time since the start of the war, raising concerns they could resume targeting ships in the Red Sea and further disrupting critical shipping lanes. Saudi Arabia has been using the East-West Pipeline to reroute oil flows away from the Strait of Hormuz, demonstrating the severity of the supply disruption. Tensions in the Middle East are clearly escalating rather than winding down, causing risk appetite to decline and supporting a stronger U.S. dollar. With supplies of energy, fertilizers, and other critical minerals being choked by the closure of the Strait of Hormuz, investors remain concerned over the severe economic damage this could inflict globally.

Energy Shock Sustains Inflation Concerns and Rate Expectations:

The energy shock continues to dominate central bank thinking and market rate expectations. Developments regarding the conflict remain the key driver for market sentiment, with the energy crisis extending far beyond temporary disruption. The International Energy Agency has warned that supply chain interruptions are affecting essential materials for manufacturing, textiles, and farming, including fertilizers, petrochemicals, and sulfur. These extended disruptions are fueling serious inflation fears, forcing central banks to adopt stricter language to prevent runaway prices.

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. 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. 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.

Canadian Dollar Pressured Despite Elevated Oil Prices:

The Canadian dollar faces pressure despite elevated crude prices that typically support the currency as a commodity exporter. The Bank of Canada's cautious stance on looking through temporary energy-driven inflation spikes, combined with domestic economic weakness, is weighing on the Loonie. Following the Bank's cautious tone last week, the U.S.-Canada 2-year yield differential has stayed above 100 basis points, showing a stronger USD against a backdrop of missed Canadian macro projections and tension in global fixed income markets. 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 Canadian dollar, signaling growing skepticism regarding a smooth economic transition as financial conditions continue to tighten.

USD/CAD is trading above its 200-day Simple Moving Average for the first time since mid-January, with the pair having climbed sharply from late-February lows near 1.3550. The short-term trend is clearly bullish, though consolidation around the 1.38 handle is likely in the near term assuming there is no sudden spike in safe-haven demand. Looking at the wider technical landscape, 1.37 serves as the key long-term support level, while 1.39 stands as the critical long-term resistance that bulls will need to conquer.

Canadian Data/Outlook:

The main event of the week will be GDP data on Tuesday for January, with economists forecasting the Canadian economy took a small step backward in the first month of 2026. That said, with some of the one-off factors easing in February, the advance estimate for February should point to a decent rebound in activity. All told, the data is unlikely to move the needle for the Bank of Canada nor USD/CAD, giving policymakers comfort to sit on the sidelines to digest the impact of the Middle East conflict. 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.

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. RBC expects the Fed Funds rate will remain at the current 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 as daily indicators move into elevated territory), 1.3985 (further resistance level)
Support: 1.3856 (has reversed roles to serve as initial support after last week'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: Last week's daily close above 1.3856 sustains bullish momentum and upholds the range breakout above 1.3728. Focus shifts to strong congestive resistance at 1.3932, which may attract selling interest as daily indicators move into elevated 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 today, 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. CIBC strategists are looking for a reversal in USD/CAD to end the week at 1.3850 given expectations for a soft U.S. NFP number on Friday, though this assumes no sudden escalation in geopolitical tensions.

Other Notes:

• Avi Lewis has been elected leader of the federal NDP, capturing 56 percent of the first-ballot vote. The documentary filmmaker and former television host inherits a party holding just six seats in the House of Commons. His leadership has already drawn criticism from NDP premiers in Saskatchewan and Alberta over his opposition to fossil fuel projects.
• The U.S. dollar is testing ten-month highs as the currency pressure is pushing Japanese authorities to issue severe warnings about potential market intervention to protect the yen. Perhaps the most worrisome fallout from this crisis is the severe pain in global bond markets, with the looming threat of energy-driven inflation pushing long-term yields sharply higher around the world. U.S. 10-year Treasury yields are near 4.46 percent, while UK gilts and Japanese government bonds are hitting multi-decade highs.
• Risk assets remain isolated to specific sectors. Growth-sensitive metals like copper are losing ground, and a stronger U.S. dollar is weighing heavily on gold and silver. The energy shock is forcing investors into a highly defensive posture, with equities dropping across the board and Asian indices like the Nikkei and Kospi suffering steep declines.

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.