The Canadian Dollar (CAD) has been the only major currency to remain steady against the US Dollar since the US/Iran conflict began on Saturday. Markets have shown risk-averse behaviour, while G10 currency moves have broadly returned to historical patterns.
Short-term rates markets are pricing a neutral path for the Bank of Canada (BoC). Yield spreads have been somewhat disconnected from the CAD, and the correlation between the CAD and crude oil has been weak.
Scotiabank’s fair value estimate for USD/CAD is 1.3599, just below 1.36. USD/CAD has traded defensively for two sessions, with steady losses after Tuesday’s ‘shooting star’ doji candle.
The Relative Strength Index (RSI) is drifting further below 50, which points to increasing bearish momentum. Support is limited between current levels and the low 1.35, with an expected near-term range of 1.3580 to 1.3680.
The article notes it was created with the help of an Artificial Intelligence tool and reviewed by an editor.
Looking back to early 2025, we saw the Canadian dollar show remarkable resilience against the US dollar, especially during the geopolitical tensions with Iran. At that time, a neutral Bank of Canada and technical indicators suggested a defensive, slightly bearish tone for the USD/CAD pair. The market was largely confined to a tight range between 1.3580 and 1.3680.
The situation has since shifted, and our view must adapt as USD/CAD now trades closer to 1.3850. The key driver is the growing divergence in monetary policy, with recent Canadian inflation data for February 2026 coming in at 2.1%, while US inflation remains stickier at 2.8%. This data reinforces expectations that the Bank of Canada will likely begin cutting interest rates before the US Federal Reserve.
For derivative traders, this outlook supports positioning for further USD/CAD strength in the coming weeks. Buying USD call options against the CAD is a direct way to express this view, especially as implied volatility is currently subdued near multi-month lows. This makes the cost of establishing bullish positions relatively inexpensive.
The historical correlation between crude oil and the Canadian dollar also appears less reliable now. Even with WTI crude prices holding firm around $85 per barrel, the CAD has failed to gain significant ground. This confirms that interest rate differentials are the dominant factor driving the currency pair.
A prudent strategy would be to consider bull call spreads to manage costs while targeting a measured move higher. For instance, buying a 1.3900 strike call and simultaneously selling a 1.4100 strike call for a late April expiry offers a defined-risk way to profit from a continued upward trend. This structure takes advantage of the current environment without over-committing to a dramatic breakout.
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