USD/CAD traded near 1.3660 during Asian hours on Monday, and stayed subdued for a second day. The pair fell as the Canadian Dollar gained support from higher oil prices, with Canada the largest crude exporter to the US.
WTI traded around $94.00 per barrel after a 2.4% fall the previous day. Oil rose amid supply concerns linked to stalled US–Iran peace talks.
Geopolitical Tensions And Oil Supply
US President Donald Trump told Jared Kushner and Steve Witkoff to skip a trip to Pakistan, which is mediating talks. Trump said Iran “offered a lot, but not enough”, while Iranian President Masoud Pezeshkian said Iran would not enter “imposed negotiations under threats or blockade”.
Traffic through a strategic waterway remained largely restricted due to Iran’s controls and a US naval blockade. This added to concerns about extended disruption and supported crude prices.
USD/CAD was also held down as the US Dollar fell for a second day. This came despite higher safe-haven demand as the ceasefire came under strain, with Israel and Hezbollah increasing attacks during a US-brokered three-week extension.
We are seeing a familiar tension in USD/CAD, which is currently hovering around 1.3700. The commodity-linked Canadian Dollar is drawing support from firm WTI crude prices, which are trading near $84.50 a barrel due to persistent geopolitical risks. This dynamic is creating a tug-of-war that derivative traders should watch closely.
Volatility Positioning In Usd Cad
Looking back at similar situations in 2025, we recall how stalled US-Iran talks and naval blockades sent oil prices and market volatility soaring. That period serves as a clear blueprint for how quickly geopolitical headlines can override economic data in the energy sector. These past events underscore the importance of monitoring supply-side risks originating from the Middle East.
Unlike last year’s scenario, however, the US Dollar is showing significant underlying strength today. This is largely due to the divergence in central bank policy, as US inflation remains persistent at 3.5%, keeping the Federal Reserve from cutting rates. Meanwhile, with Canadian inflation easing to 2.9%, the Bank of Canada is expected to lower rates sooner, which could weaken the CAD.
For derivative traders, this clash between strong oil and a strong US dollar suggests implied volatility in USD/CAD is likely undervalued. We believe positioning for a significant price move, rather than a specific direction, is prudent. Purchasing straddles or strangles could allow traders to profit from a breakout, whether oil prices push the pair down or interest rate policy drives it higher.
Traders should also focus on the crude oil market itself, as it is the primary catalyst. Open interest in WTI futures has climbed over 5% in the last month, showing that money is flowing into the market in anticipation of price swings. We are seeing notable activity in call options with strike prices above $90, indicating a hedge against further supply disruptions.
