USD/CAD failed to build on a recovery from the 1.3550 area, its lowest level since 10 March, and traded sideways in Asia on Tuesday. It was near 1.3620, with mixed drivers affecting direction.
Middle East risks linked to the US-Iran dispute over the Strait of Hormuz supported crude oil prices and the Canadian dollar. Limited follow-through buying of the US dollar also restrained USD/CAD, while wider geopolitical uncertainty and expectations for a hawkish Federal Reserve supported the US dollar.
Technical Levels And Market Bias
The pair kept a mild bearish bias while below the 100-period simple moving average on the 4-hour chart. Resistance sits near 1.3650, which also matches the 23.6% Fibonacci retracement of the late March to early May fall.
Indicators were mixed, with the RSI near 51 and the MACD slightly positive. This pointed to weaker downside momentum, but no clear upward turn while below 1.3650.
A move above 1.3650 could open 1.3710 (38.2%), 1.3758 (50.0%), and 1.3806 (61.8%). Support was near the recent swing low at 1.3553 if selling returns.
We are currently seeing the USD/CAD pair pivot around the 1.3620 mark, finding it difficult to move decisively. The strength of the Canadian dollar is being propped up by high oil prices, which are a direct result of ongoing geopolitical risks in the Middle East. At the same time, the US dollar is holding its ground because of expectations that the Federal Reserve will maintain a hawkish stance.
To make this view more credible, recent data shows West Texas Intermediate (WTI) crude has been consistently trading above $87 a barrel, fueled by OPEC+ maintaining its production cuts through the third quarter of 2026. This provides a strong fundamental support for the loonie. This is a significant factor keeping the USD/CAD from climbing higher.
Strategy For A Breakout Environment
On the other side of the pair, last week’s US Consumer Price Index (CPI) report for April 2026 came in at 3.2%, slightly above forecasts and preventing the Fed from signaling any rate cuts for the summer. This stubborn inflation keeps the US dollar attractive. The market is now pricing in less than a 40% chance of a rate cut before September, up from 70% just a month ago.
Given these opposing strong forces, we see an opportunity in volatility rather than direction. A long straddle options strategy is appropriate, involving the purchase of both a call and a put option with the same strike price, likely near the current 1.3620 level, and the same expiration date. This position profits if the pair makes a significant move in either direction before the options expire in the coming weeks.
Looking back at a similar period of uncertainty in mid-2025, we saw the USD/CAD consolidate for weeks before a surprisingly strong US jobs report caused a sharp 150-pip rally in a single day. Those positioned for a breakout, rather than a specific direction, were the most successful. We anticipate a similar scenario could unfold once either the oil narrative or the Fed narrative breaks.
The key technical level to watch is the 1.3650 resistance area. A sustained break above this point would signal US dollar strength is winning out, creating a target toward 1.3710. Conversely, a failure to break that resistance and a fall below the recent low of 1.3550 would indicate that high oil prices are taking control, opening the door for a deeper slide.
