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Venezuela in Focus
US President Trump has announced temporary control over Venezuela. He plans for US oil companies to invest in the country’s energy infrastructure. Venezuela has the biggest proven crude oil reserves, estimated at around 303 billion barrels, according to US EIA data. Investors are also watching US economic data closely, as this will influence what the Federal Reserve does next with its monetary policy. Some expect two rate cuts in 2026, even with strong short-term demand for the US Dollar. The ISM Manufacturing PMI is projected to indicate contraction. The US Nonfarm Payrolls report is a key focus for this week. Minneapolis Fed President Kashkari believes US monetary policy is nearly neutral, noting concerns about unemployment and inflation. In Canada, the Bank of Canada (BoC) feels comfortable with its current policies and aims for inflation near the 2% target, signaling no immediate changes to its easing cycle.Canadian Economic Indicators
Canada’s economic calendar will release the Ivey PMI and job market data. Recent statistics show the US Dollar is strong against various currencies, especially against the Canadian Dollar. With geopolitical tensions pushing the USD/CAD exchange rate toward 1.3800, we can expect increased volatility soon. Uncertainty over Venezuelan oil supply creates a risk-averse environment that often benefits the US Dollar as a safe haven. As a result, option strategies, like buying straddles or strangles on USD/CAD, could be effective to profit from significant price shifts in either direction. Initially, news from Venezuela led to a spike in oil prices, with WTI crude briefly reaching $80 a barrel, a price not consistently held since late 2024. However, the US’s plans to invest in Venezuela’s damaged infrastructure could complicate matters in the long run. Venezuelan oil production has been below 900,000 barrels per day for years, dropping from over 2.3 million bpd a decade ago. If production increases, it could flood the market, stabilizing oil prices in the medium term. This situation creates a tension between short-term and long-term oil futures, offering traders an opportunity to use calendar spreads. We’ve seen similar initial price increases during supply disruptions, like the drone attacks on Saudi facilities in 2019, which were later followed by a market adjustment. Thus, holding near-term oil contracts while being cautious about contracts set for late 2026 and beyond is a sensible strategy. The monetary policy outlook supports a strong US Dollar against the Canadian Dollar. While markets expect two Fed rate cuts this year, the US labor market remained surprisingly robust throughout 2025, adding over 180,000 jobs per month in the final quarter. In contrast, the Bank of Canada has signaled the end of its hiking cycle, especially since job growth in Canada slowed down in the latter half of last year. Considering this overall outlook and the current geopolitical situation, it’s a good time to consider bullish positions on the USD/CAD pair. Buying call options on USD/CAD offers a way to invest in potential further gains, possibly reaching the psychological level of 1.4000, which hasn’t been seen since 2022. Although increased implied volatility raises options prices, the potential for sharp movements makes it worthwhile. We should keep a close eye on this Friday’s US Nonfarm Payrolls report. A strong jobs report may lower the chances of aggressive Fed rate cuts, boosting the US Dollar further. On the other hand, a weak report might provide a good opportunity to build long USD/CAD positions during a temporary dip. Create your live VT Markets account and start trading now.<Click here to set up a live account on VT Markets now
