USD/CAD slipped to 1.3615 on Tuesday after failing near 1.3630, while staying above 1.3600. It rebounded from Friday’s low at 1.3550 and kept most gains from the past two sessions.
Demand for the US Dollar has been supported by mild risk-off conditions linked to rising US-Iran tensions. Reports include two American-flagged cargo ships crossing the Strait of Hormuz, alongside other ships reporting explosions or fires, and an Iranian attack on an oil port in the UAE, which hosts a large US Army base.
Oil Prices And The Canadian Dollar
Oil prices have stayed high, with WTI holding above $101 and remaining above the $100 level. As crude oil is Canada’s main export, elevated prices have supported the Canadian Dollar.
Key US data due Tuesday include the ISM Services PMI for April and the JOLTS Job Openings report for March. On Friday, the US Nonfarm Payrolls report and Canada’s April employment figures are scheduled for release at the same time.
CAD drivers include Bank of Canada policy rates and its inflation target range of 1–3%, oil prices, domestic growth, inflation, trade balance, and market risk mood. The US economy also affects the CAD, given trade links with Canada.
We recall the USD/CAD rebound struggling above 1.3600 in 2025, when strong oil prices provided significant support for the loonie. Today, on May 5th, 2026, the picture is quite different, with the pair trading more firmly near 1.3750. The primary driver for the Canadian dollar has weakened, as WTI crude has since fallen from over $100 to a more stable range around $82 per barrel.
Boc Fed Policy Divergence
The key market focus has shifted from geopolitics to the growing policy divergence between the Bank of Canada (BoC) and the US Federal Reserve. We have seen Canadian inflation ease to 2.2%, which prompted the BoC to initiate a rate-cutting cycle last month to bolster an economy with annualized growth struggling near 1%. Meanwhile, stickier US inflation, last reported at 2.9%, has kept the Fed on hold, widening the interest rate advantage in favor of the US dollar.
While the specific US-Iran tensions from last year have subsided, a broader risk-off sentiment in global markets continues to favor the safe-haven greenback. This provides a solid floor for USD/CAD and cushions it against any minor pullbacks. The market is less focused on temporary conflicts and more on the fundamental economic strength of the US.
In this environment, we should look at buying USD/CAD call options with strike prices around 1.3800 and 1.3850, expiring in the next four to six weeks. This strategy allows for capitalizing on a continued upward trend driven by interest rate differentials, while defining our risk to the premium paid. The current moderate implied volatility makes the entry cost for such a position relatively attractive.
