USD/CAD Market Update

USD/CAD Firms to 1.3918 – Thursday, April 02, 2026

Current Level: Low-1.39s (24hr range 1.3869–1.3933)

USD/CAD is trading near 1.3918 on Thursday morning, up 22 pips from the previous session as the pair consolidates near recent highs. President Trump delivered his first primetime address on the Iran conflict yesterday, stating that U.S. military operations are nearing completion but providing no concrete timeline for ending the war. He explicitly warned that the U.S. will strike Iran "extremely hard" over the next several weeks and threatened to target Iran's electric grid if no agreement materializes. The Canadian dollar remains under pressure as geopolitical uncertainty persists and the Bank of Canada maintains a cautious policy stance despite elevated energy prices.

Market Overview:

Risk appetite has deteriorated this morning as traders reassess the conflict outlook following Trump's address. Equity markets are opening lower as investors recognize that military operations will extend for weeks rather than resolve quickly. The U.S. dollar is stronger across the G10 basket as safe-haven flows persist, supported by the escalation rhetoric and ongoing concerns about supply disruptions from the closed Strait of Hormuz. Global bond yields are higher as markets price in persistent inflation from sustained energy price elevation. Oil prices have surged with Brent crude well above 104 dollars per barrel, reflecting the extended timeline for the conflict and the economic damage from prolonged supply constraints.

Trump Extends Military Timeline, Threatens Infrastructure Strikes:

President Trump's address signaled that the conflict will persist for weeks rather than resolve in the near term. He stated that U.S. military operations are nearing completion but failed to provide a concrete timeline for ending the war. Trump warned explicitly that the U.S. will strike Iran "extremely hard" over the next several weeks and threatened to destroy Iran's electric grid if no agreement materializes. Notably absent from his remarks were discussions about reopening the Strait of Hormuz or any direct appeal for Iranian public uprising against the regime. The tone of the address leaned firmly toward escalation rather than de-escalation.

The administration is treating elevated energy prices as collateral damage in pursuit of its military objectives. Trump urged European allies to increase purchases of American oil and confirmed the U.S. is moving to secure Venezuelan supply as a strategic asset. He made clear that reopening the Strait of Hormuz is largely the responsibility of European and Asian allies, with Washington setting the terms while others manage the operational consequences. Markets have priced in that the conflict is only at halftime, with volatility baked into the outlook for weeks to come.

Energy Supply Crisis Deepens Global Inflation Concerns:

The world economy is losing approximately 10 percent of its oil supply per day with the Strait of Hormuz closed. Iran continues to attack civilian vessels entering the Strait, declaring full control of the world's most important water passage. Each day that passes with the closure increases inflationary concerns exponentially, as prolonged high energy prices will feed into core inflation. The International Energy Agency has warned that supply chain interruptions are affecting essential materials including fertilizers, petrochemicals, and sulfur needed for manufacturing, textiles, and farming.

Markets recognize that reopening the Strait of Hormuz is the only metric that truly matters. Until that is accomplished and evidence emerges that traffic is returning to normal, everything else is secondary noise. The energy shock continues to dominate central bank thinking and has essentially erased any possibility of rate cuts in 2026. Investors are steadily stepping back from risky assets due to concerns that central banks will maintain restrictive policies while energy prices remain elevated.

Canadian Dollar Struggles Despite Oil Support:

The Canadian dollar is struggling to regain momentum despite elevated crude prices that typically provide support as a commodity exporter currency. The Bank of Canada's cautious policy stance, which emphasizes looking through temporary energy-driven inflation spikes, 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 economic projections and tension in global fixed income markets.

The Loonie briefly slipped to around 1.387 yesterday before staging an overnight rebound to reclaim the 1.39 handle following Trump's address. Positioning data shows traders easing out of their most bearish bets on the Canadian dollar, though confidence remains slightly bearish. The currency's descent to recent lows suggests that internal economic deceleration is now weighing more heavily than the support typically provided by favorable energy terms of trade. Geopolitical and trade-related uncertainties, including the lack of progress in USMCA renegotiation ahead of the July 1 renewal marker, introduce additional political risk.

Canadian Data/Outlook:

There is no top-tier Canadian economic data scheduled for release today. The Bank of Canada is expected to hold its overnight rate at 2.25 percent at the 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 conflict on inflation, but if energy prices stay elevated, the Bank will not let their effects broaden and become persistent. Canadian GDP data is scheduled for release next week, with economists forecasting the economy contracted by 0.1 percent in January versus 0.2 percent growth previously.

Fed Watch:

The Federal Reserve is expected to hold rates at 3.75 percent at its April 29 meeting. Markets have completely priced out any rate cuts for 2026 as the energy shock from the Middle East conflict adds inflationary pressure that may force the central bank to remain restrictive even as growth weakens. Current market pricing shows zero probability of rate cuts this year. The 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 elevated oil 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 (initial support after recent 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)
Outlook: 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 current levels is likely in the near term assuming there is no sudden spike in safe-haven demand. The 1.37 level serves as key long-term support, while 1.39 stands as critical long-term resistance that bulls will need to conquer. A daily close above 1.3932 would signal further upside momentum toward 1.3985.

Week Ahead:

The week ahead features a critical slate of U.S. labor market data that will test the resilience of employment and consumer spending. Today's unemployment claims are expected to rise to 215,000 from 210,000 previously, suggesting some softening in the labor market. Friday's non-farm payrolls report is the key event, with consensus expecting a rebound to 50,000 jobs after last month's negative 92,000 print. This combination of data will be important for determining whether the Fed's patient stance remains appropriate or whether economic deterioration is accelerating. Average hourly earnings are forecast to decline to 0.3 percent from 0.4 percent, signaling potential cooling in wage pressures. The reaction function for USD/CAD is straightforward: stronger labor data supports the dollar by reinforcing rate expectations, while meaningful weakness could pull rate expectations lower and raise concerns about economic deterioration. The ISM Services PMI will provide additional insight into service sector activity amid higher energy costs.

Other Notes:

• The euro's brief recovery above 1.16 proved fleeting as Trump's latest remarks quickly reversed the move, pulling the pair back toward the 1.15 handle. The 50-week moving average continues to hold as key resistance. Rate differentials are offering the euro little support as inflation becomes the dominant concern and erodes the real value of nominal yield advantages. German gas storage levels ended winter at roughly 22 percent full, the lowest in seven years, keeping Europe far more exposed to energy-price volatility than the U.S.
• Sterling briefly pushed back above 1.33 against the U.S. dollar but those gains quickly faded. GBP/USD is flirting with the key 1.32 support level, and a break below that threshold would target the 100-week moving average near 1.3110. UK manufacturing data showed the sharpest supply-chain strain and fastest input-cost inflation since late 2022, driven by shipping delays and material shortages. Output contracted for the first time in six months, and business confidence fell to a series low.
• The Mexican peso is struggling as the manufacturing sector remains stuck in low gear. The S&P Global Mexico Manufacturing PMI came in at 47.1, while the IMEF Manufacturing Index printed at 47.4, both firmly below the 50 threshold that separates expansion from contraction. The once-durable "Super Peso" narrative is beginning to lose its shine as USD/MXN has pushed up to 17.93, breaking above its 20-day and 50-day moving averages. Correlation data shows the peso's sensitivity to the VIX has jumped to nearly 0.90, meaning the currency is now trading almost in lockstep with global risk sentiment.
• Oil prices remain elevated with Brent crude well above 104 dollars per barrel. The sustainability of this price level depends on whether diplomatic progress translates into actual improvements in shipping flows through the Strait of Hormuz. Until energy supply normalizes, oil prices are likely to remain elevated and volatile, providing a floor for the U.S. dollar despite any near-term shifts in risk sentiment.

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.