Oil Prices Lift The Canadian Dollar
US data may limit further falls in the US Dollar. The ISM Services PMI rose to 56.1 in February 2026 from 53.8, above the 53.5 forecast. The USD/CAD pair is currently facing opposing pressures, which creates a complex trading environment. West Texas Intermediate (WTI) crude oil has just pushed above $95 a barrel for the first time this year, a nearly 12% rise since early February, directly strengthening the Canadian dollar. This move is largely fueled by escalating geopolitical tensions in the Middle East. We are seeing clear signs of supply disruption risk following another naval standoff in the Strait of Hormuz last week. This is compounded by recent Energy Information Administration (EIA) data showing a surprise crude inventory drawdown of 3.1 million barrels, against expectations of a build. This tight supply narrative is providing a strong tailwind for oil and, by extension, the loonie. However, the US dollar is showing its own resilience, preventing a sharper fall in the currency pair. The strong ISM Services PMI report at 56.1 is now supported by last week’s Non-Farm Payrolls data, which showed the US economy added a robust 265,000 jobs in February. This consistent flow of positive data points to an American economy that is not slowing down.Volatility Risks And Trading Approaches
Consequently, we’ve seen market expectations for a Federal Reserve interest rate cut in June fall significantly. The CME FedWatch tool now shows less than a 40% probability of a cut by mid-year, down from over 70% just a month ago. This expectation of higher-for-longer US rates provides a solid floor for the US dollar. This tug-of-war suggests that volatility in USD/CAD is the most likely outcome in the coming weeks. Implied volatility on one-month options has already climbed to its highest level since late 2025, meaning traders should consider strategies that profit from price movement itself, regardless of direction. Long straddles or strangles could be effective ways to position for a significant breakout. We remember how a similar oil spike in the third quarter of 2025 gave the loonie a temporary boost before tighter US monetary policy eventually won out. Therefore, while riding the oil-driven CAD strength, it is prudent to use options to hedge against a potential sharp reversal. A move back towards 1.3800 is very possible if US economic data continues to outperform and overshadow the energy markets. Create your live VT Markets account and start trading now.
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