Hormuz Passage Support Measures
Bloomberg reported that Interior Secretary Doug Burgum said several measures are under review. These include insurance guarantees and naval escorts to support tanker and vessel passage through the Strait of Hormuz. The US Dollar strengthened against major peers as some Federal Reserve officials kept open the option of further rate rises if inflation stays above target. This came as other policymakers have argued for starting rate cuts. Markets are awaiting Friday’s US Nonfarm Payrolls report, expected at about 59K for February after 130K in January. Retail Sales are expected to drop 0.3% month-on-month in January after no change in the prior month. Looking back to this time last year, we saw USD/CAD trading around 1.3660 as the market weighed Canadian dollar strength against falling oil prices. The primary concern was the US-Israeli conflict with Iran and its potential impact on oil tanker passage through the Strait of Hormuz. This uncertainty created significant tension for commodity-linked currencies.One Year Later Market Repricing
The US naval escort and insurance guarantee plan, which was being discussed in March 2025, was largely successful in stabilizing crude supply fears. As a result, the geopolitical risk premium has evaporated from oil prices, with WTI now trading much lower, averaging around $71.50 a barrel through February 2026. This has removed a key pillar of support for the Canadian dollar that existed during the conflict’s peak. At this time last year, the Federal Reserve was still contemplating further rate hikes, but that stance has softened considerably. US Core PCE inflation has since cooled, falling to 2.4% year-over-year in the latest January 2026 reading. This has shifted market expectations firmly toward the Fed beginning rate cuts by this summer. This creates a clear policy divergence, as the Bank of Canada may have less room to cut rates aggressively given the pressure on its economy from weaker commodity prices. Therefore, we see the path of least resistance for USD/CAD as upward in the coming weeks. Traders should consider using call options on USD/CAD to position for a potential move toward the 1.3900 level. Create your live VT Markets account and start trading now.
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