The Canadian Dollar (CAD) is largely stable today, even as the US Dollar strengthens slightly and the Mexican Peso (MXN) gains. According to Scotiabank’s Chief FX Strategists, there is a mild uptick in North American foreign exchange markets. Oil prices have increased by over 1% due to rising tensions in Iran and President Trump’s threats of tariffs on countries dealing with Tehran. The Canadian Dollar’s recent performance has been negatively affected by low energy prices and weaker trade conditions.

Canadian Dollar Fair Value Estimate

The fair value estimate for the Canadian Dollar has improved to 1.3824 as oil prices rise. The daily chart shows that the US Dollar’s recovery appears to have slowed down. The US Dollar’s small loss on Monday introduces some technical risks. Current price patterns suggest a potential reversal above the 1.39 resistance level, possibly dipping back to the low 1.38 range. Looking back to early 2025, we noticed the US Dollar’s rebound slowed as oil prices began to stabilize, mainly due to geopolitical tensions in Iran. This showed how sensitive the CAD/USD exchange rate is to changes in the energy market. Today, this sensitivity has increased further as WTI crude futures have surged past $95 a barrel due to renewed disruptions in the Strait of Hormuz. This sharp increase is more aggressive than last year’s moves and strongly supports the Canadian Dollar. Historically, such significant surges in oil, like after the Ukraine invasion in 2022, have led to months of strength for the Canadian Dollar.

USDCAD Testing Key Support Levels

The USD/CAD pair is currently testing the 1.3350 level, contrasting sharply with the strong resistance at around 1.39 observed in January 2025. With this momentum, there is a substantial chance for a move towards the 1.32s in the upcoming weeks. The technical indicators suggest further downside for the pair. For derivatives traders, this environment signals a good time to position for more gains in the Canadian Dollar. Implied volatility on three-month USD/CAD options has risen to 8.5%, indicating that the market is anticipating larger price swings than we’ve seen lately. Strategies like buying CAD call options or USD put options could be attractive due to their defined risk and potential for profit. On the fundamentals side, this positive outlook is backed by differing central bank perspectives. The latest Canadian Consumer Price Index (CPI) showed an unexpected high of 3.2%, making it tough for the Bank of Canada to consider interest rate cuts. In contrast, last week’s US jobless claims rose to 225,000, signaling a slight cooling in the labor market and giving the Federal Reserve more room to maneuver. This sentiment is also visible in market positioning. Recent data shows a notable increase in net-long Canadian Dollar positions among non-commercial traders, marking a shift from the more balanced positions held throughout much of last year. This suggests a growing belief that the path ahead for the Canadian Dollar is upward. Create your live VT Markets account and start trading now.

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