USD/CAD fell for a fourth day, trading near 1.3708, its lowest level since 23 March, as higher oil prices supported the Canadian Dollar. The US Dollar Index traded near 98.20, ending an eight-day losing run but staying close to six-week lows.
Oil prices stayed elevated amid ongoing disruption to supply through the Strait of Hormuz during a dual blockade by US forces and Iran. Iranian state media said any future transit tolls would be processed via Iranian banks, pointing to tighter control over the route.
Oil Driven Strength In The Canadian Dollar
West Texas Intermediate crude rebounded after a two-day decline, trading around $90.50. Canada’s currency often tracks oil because Canada is a major crude exporter.
Markets watched for confirmation of a second round of US-Iran talks after Donald Trump said negotiations could resume this week, following talks in Islamabad that did not produce a breakthrough. Higher energy costs kept inflation risks in view, with Canada’s inflation below the Bank of Canada’s 2% target.
US inflation stayed above the Federal Reserve’s 2% target, with March CPI at 3.3% year on year versus 2.4%. US initial jobless claims fell to 207K versus 215K expected, while industrial production fell 0.5% month on month against a 0.1% rise forecast.
We remember looking at this situation last year, in 2025, when disruptions in the Strait of Hormuz pushed WTI crude oil above $90 a barrel. This geopolitical tension was the primary driver strengthening the Canadian dollar and pushing the USD/CAD pair down towards 1.3700. The market’s focus was squarely on the US-Iran talks and the risk of a prolonged supply shock.
How The Setup Looks In 2026
Fast forward to today, April 16, 2026, and the theme of elevated energy prices remains firmly in place. WTI crude is currently trading around $85 per barrel, supported by ongoing Middle East tensions and disciplined OPEC+ supply cuts that have kept inventories tight. Similar to last year, this has provided a floor for the Canadian dollar, keeping USD/CAD hovering near the same 1.3750 level.
The key difference now is the inflation picture, which has evolved since 2025. While US inflation remains persistent at 3.5% as of March, Canadian inflation has accelerated to 2.9%, much higher than the sub-2% levels seen last year. This reduces the policy divergence between the Fed and the Bank of Canada, making a straightforward short USD/CAD trade less compelling than it was in 2025.
For derivatives traders, this persistence of geopolitical risk premium in oil suggests volatility is undervalued. Buying straddles or strangles on crude oil futures or related ETFs could be a prudent way to position for a sharp price move in either direction if tensions escalate or de-escalate unexpectedly. The premium paid is the maximum risk for a potentially significant reward.
Given that both central banks are now grappling with sticky inflation, the USD/CAD pair may be more range-bound than it was last year. This environment makes selling options attractive, and traders might consider strategies like an iron condor on USD/CAD futures. This position would profit from the pair trading sideways and experiencing low volatility in the coming weeks.
We only need to look back to the energy price spike in 2022 to be reminded of how quickly geopolitical events can reshape the market. Therefore, a small allocation to cheap, out-of-the-money call options on WTI crude could serve as an effective, low-cost hedge. This provides upside exposure in case the situation in the Strait of Hormuz deteriorates suddenly, mirroring the fears we held this time last year.
