USD/CAD opened with a modest bearish gap on Monday, then rose back above 1.3700 in the Asian session. The move ended a five-day decline after Friday’s drop to just below the mid-1.3600s, the lowest level since 13 March.

Tension between the US and Iran around the Strait of Hormuz increased risk aversion and supported the US Dollar after Friday’s rebound from a near two-month low. Higher crude oil prices supported the Canadian Dollar and limited further gains in the pair.

Strait Of Hormuz Developments

Iran said it is closing the Strait of Hormuz again to commercial vessels and that ships approaching it will be targeted. This followed an escalation of the US naval blockade of Iranian ports, which Iran described as a breach of the ceasefire, and it cited this as a reason for cancelling a second round of peace talks.

The developments raised supply concerns and pushed oil prices higher. The US Dollar then eased from a one-week high as expectations of a Federal Reserve rate rise fell, which also restrained USD/CAD.

A correction was issued on 20 April at 02:30 GMT to amend the title to “the Canadian Dollar retreats from over one-month high vs USD”, not “one-month low”.

We remember this time last year when tensions in the Strait of Hormuz created mixed signals for the USD/CAD pair. The market was caught between a flight to the safe-haven US dollar and the strengthening effect of higher oil prices on the Canadian loonie. This dynamic led to choppy trading around the 1.3700 level.

Central Bank Policy Divergence

Today, while the geopolitical situation is quieter, the influence of energy prices remains a key factor for traders. With West Texas Intermediate (WTI) crude oil currently trading firmly above $95 a barrel, significantly higher than the average price in early 2025, the Canadian dollar has a strong underlying support. This persistent strength in oil is a constant headwind for anyone expecting a major rally in USD/CAD.

The dominant theme now, however, is the divergence in central bank policy, a factor that was only beginning to emerge last year. The Bank of Canada is now openly discussing rate cuts to support a slowing economy, whereas recent US inflation data, like last month’s 3.1% year-over-year CPI reading, has forced the Federal Reserve to maintain a hawkish stance. This policy gap is the main reason we see the pair trading above 1.3800 today.

For the coming weeks, we believe selling cash-secured puts on USD/CAD could be a viable strategy to take advantage of high volatility. This allows traders to collect premium while setting a target to buy the pair on any potential dips caused by oil price strength. Alternatively, buying call option spreads can offer a cost-effective way to position for further upside driven by central bank policy, while capping potential losses.

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NZD/USD trimmed earlier losses and traded near 0.5880 in Asian hours on Monday, moving back towards 0.5900. The move followed New Zealand trade figures showing a March monthly surplus of NZD 698 million, after a NZD 365 million deficit in February.

New Zealand’s annual trade deficit was NZD 3.2 billion in March, compared with NZD 3.1 billion a month earlier. Exports rose 7.3% year-on-year to a record NZD 7.94 billion, while imports increased 9.6% to NZD 7.25 billion.

China Policy Rates Unchanged

In China, the People’s Bank of China left Loan Prime Rates unchanged on Monday. The one-year LPR stayed at 3.00% and the five-year LPR remained at 3.50%.

The pair also faced pressure as the US Dollar gained support from safe-haven demand linked to renewed US–Iran tensions. IRNA reported that Iran refused to restart talks with US officials, citing “unrealistic expectations”.

Iran has kept the Strait of Hormuz blocked since US and Israeli strikes on February 28. A brief reopening signal on Friday was reversed on Saturday after President Donald Trump declined to lift the blockade on Iranian ports.

Trump said on Truth Social that US representatives will travel to Islamabad for negotiations with Iran on Monday. He also warned of possible action against Iranian infrastructure, including power plants and bridges.

Risk Sentiment And Market Volatility

We see the positive New Zealand trade surplus being overshadowed by the larger geopolitical risks. The record high exports are a strong domestic signal, but the escalating US-Iran tensions are driving a flight to safety in the US Dollar. This global risk-off sentiment is likely to be the dominant driver for NZD/USD in the near term.

The conflicting economic and political news is a recipe for increased price swings. We anticipate implied volatility in the currency markets will rise, especially for pairs sensitive to global trade and risk. This environment suggests that buying options to play the volatility may be a more prudent strategy than taking a simple directional bet.

The blockage of the Strait of Hormuz is a major threat to global energy supplies, as historically over 20 million barrels of oil pass through it each day. We saw a similar dynamic during the initial phases of the Ukraine conflict in 2022, where spiking energy prices and uncertainty boosted the US Dollar significantly. A prolonged closure would likely repeat this pattern, putting further downward pressure on the Kiwi.

While China holding its loan prime rates steady provides some stability, it does not inject new stimulus into its economy. New Zealand’s economic health is closely tied to Chinese demand, making the Kiwi vulnerable to any slowdown in its largest trading partner. The lack of new support from the PBoC makes the foundation for New Zealand’s record exports appear less secure.

The US Dollar remains the ultimate safe-haven asset during times of international crisis. We recall the US Dollar Index (DXY) reaching multi-decade highs in 2022 amid global turmoil, and the current situation with Iran could fuel a similar rally. President Trump’s aggressive rhetoric combined with stalled negotiations points toward continued USD strength.

Given these factors, our focus shifts to strategies that either protect against or profit from a decline in NZD/USD. We are looking at buying put options on the pair to capitalize on potential downside with a defined risk. A long straddle is also under consideration to benefit from a significant move in either direction, which seems likely given the high level of uncertainty.

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On Monday, the People’s Bank of China (PBOC) set the USD/CNY central rate at 6.8648. This compared with last Friday’s fix of 6.8622 and a Reuters estimate of 6.8291.

The PBOC’s main monetary policy aims are price stability, including exchange rate stability, and support for economic growth. It also works on financial reforms, such as opening and developing China’s financial markets.

Pboc Governance Structure

The PBOC is owned by the state of the People’s Republic of China, so it is not an autonomous body. The Chinese Communist Party Committee Secretary, nominated by the Chairman of the State Council, has key influence over management and direction, and Pan Gongsheng holds both that post and the governor role.

The PBOC uses several policy tools, including a seven-day reverse repo rate, the Medium-term Lending Facility, foreign exchange intervention, and the reserve requirement ratio. The Loan Prime Rate is China’s benchmark interest rate and affects loan, mortgage, and savings rates, while also influencing the renminbi’s exchange rate.

China allows private banks and has 19. The largest include WeBank and MYbank, backed by Tencent and Ant Group, and broader entry was permitted in 2014 for lenders funded by private capital.

The central bank’s action on Monday, setting the Yuan weaker than the market anticipated, is a significant signal for the coming weeks. We see this as a deliberate move to manage the currency’s value amid renewed economic pressures. This deviation from estimates is the largest we’ve seen since January of this year.

Market Implications And Outlook

This move likely reflects concerns over recent economic data, as China’s Q1 GDP growth came in at 4.8%, just missing the government’s target pace. With March export figures also showing a decline of nearly 2% year-over-year, a weaker currency becomes a tool to make Chinese goods more competitive abroad. We believe the PBOC is prioritizing export support over currency strength for now.

Given that the PBOC has multiple policy tools, we should not rule out further monetary easing. While they held the key Medium-term Lending Facility rate steady at 2.5% last week, the commentary was noticeably more dovish. This suggests a potential cut to the Reserve Requirement Ratio for banks could be used to inject liquidity if needed.

We saw a similar pattern in the third quarter of 2025, when a series of surprisingly weak fixes preceded a surprise 15-basis-point cut to the Loan Prime Rate. Traders should therefore be cautious about taking on long Yuan positions against the dollar. Hedging currency exposure for any China-related assets appears to be a prudent strategy.

A sustained weaker Yuan could put downward pressure on commodity prices, particularly for industrial metals, as it increases the import cost for China. Option traders might consider strategies that profit from increased volatility in the USD/CNH pair. We anticipate the currency will test the 6.90 level before the end of the second quarter.

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GBP/USD opened the week with a bearish gap and moved away from a two-month high near 1.3600 reached on Friday. It later recovered a few pips from a one-week low set in early Asian trade and was just below 1.3500, down over 0.15% on the day.

Risk sentiment weakened amid renewed US-Iran tensions over the Straight of Hormuz, supporting the safe-haven US Dollar and weighing on the pair. Iran closed the waterway after briefly reopening it at the weekend, following a US naval blockade of Iranian ports, with the current ceasefire due to end on April 21.

Escalation Risk And Market Reaction

Iran’s IRNA news agency reported on Sunday that Iran would not join a second round of talks with the US. US President Donald Trump said he would target every power plant and every bridge in Iran if Tehran did not accept Washington’s terms, adding to escalation risks.

Crude Oil prices rallied, raising inflation concerns and pushing US bond yields higher, which supported the dollar. The dollar’s gains were limited by lower odds of a US Federal Reserve rate rise, while markets priced in a Bank of England rate rise, supporting sterling.

Looking back at the geopolitical flare-up from this time last year, we can see the market’s classic knee-jerk reaction to conflict. The immediate safe-haven bid for the US dollar created a clear, short-term opportunity for derivative traders. The bearish gap in GBP/USD below 1.3500 was a strong signal.

In response to such events, traders should consider buying short-dated put options on GBP/USD to capitalize on the downward momentum and rising fear. We saw implied volatility on the pair spike over 25% during that week in April 2025, which also made selling call spreads an effective, risk-defined strategy. This is a playbook for profiting from sudden risk-off sentiment.

Oil Volatility And Options Positioning

The spike in crude oil, driven by the closure of the Strait of Hormuz, presented another direct trading opportunity. Buying call options on oil futures or energy sector ETFs would have been the most direct way to trade the escalation. Indeed, historical data shows Brent crude futures jumped nearly 10% in the 48 hours following that weekend’s news.

However, the underlying divergence in central bank policy between the Fed and the Bank of England was the more durable trend. While geopolitics caused short-term noise, the expectation of a BoE rate hike versus a neutral Fed provided a floor for the pound. This suggested that any deep, fear-driven sell-off in GBP/USD would likely be a buying opportunity for longer-term positions.

That monetary policy outlook ultimately proved correct over the following months, as GBP/USD recovered and eventually pushed towards 1.3900 by the third quarter of 2025. As of today, April 20, 2026, the Bank of England’s base rate sits at 5.5%, while the Fed Funds Rate is holding at 5.0%. This confirms the divergence we were anticipating last year has fully played out.

Current data continues to support this theme, as the latest UK inflation reading for March 2026 came in at a persistent 3.1%, keeping pressure on the BoE. Therefore, any new geopolitical tensions that boost the dollar should be viewed as a potential opportunity to enter longer-term bullish positions on the pound. The fundamental monetary policy story remains a more powerful driver than temporary risk events.

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EUR/USD ticked up after a gap lower, but stayed below zero and traded near 1.1760 in Asian hours on Monday. It remained subdued around 1.1750 as demand for the US Dollar rose amid renewed US–Iran tensions.

Iranian state media IRNA said Tehran refused to resume talks with US officials, citing “unrealistic expectations”. Iran has kept the Strait of Hormuz blocked since US and Israeli strikes on 28 February, briefly signalled a reopening on Friday, then reversed it on Saturday.

Rising Geopolitical Risk

US President Donald Trump said on Truth Social that US representatives would travel to Islamabad for negotiations with Iran on Monday. He also criticised the re-closure of the Strait and repeated threats to target Iranian infrastructure, including power plants and bridges.

The US Dollar also drew support from expectations that the Federal Reserve will keep rates higher for longer, linked to persistent inflation and Middle East tensions. Focus shifts to Tuesday’s US Retail Sales, forecast to rise 1.3% month-on-month in March after 0.6% in February.

The euro found some support as markets increased bets on European Central Bank rate rises this year. ECB President Christine Lagarde said higher energy costs are pushing the eurozone away from its baseline growth path, while the Strait blockade raised stagflation concerns.

We should anticipate a significant rise in market volatility given the standoff in the Strait of Hormuz. Derivative traders might consider buying options to profit from these expected price swings in currency and energy markets. Looking back from our perspective in 2025, we saw a similar spike in volatility indices during the onset of major geopolitical conflicts.

Trade Ideas And Market Positioning

The US dollar is positioned as the primary safe-haven asset in this crisis. A strong US retail sales report this Tuesday would reinforce the Fed’s ‘higher-for-longer’ stance, likely pushing the dollar even higher. This playbook reminds us of the 2022-2023 period, when persistent Fed hawkishness caused the Dollar Index (DXY) to rally to two-decade highs against other currencies.

The most direct trade relates to the disruption in energy supplies, as historically about 20% of the world’s seaborne oil has passed through the Strait of Hormuz. We should consider long positions on crude oil derivatives, such as call options on Brent futures. From our 2025 perspective, we recall how Brent crude prices jumped over 30% in just a few weeks after the energy supply shock in early 2022.

We expect the Euro to remain under pressure due to severe stagflation risks from the energy crisis. While the European Central Bank may talk about rate hikes to fight inflation, the threat of a recession will likely limit their actions. This creates a difficult divergence from the Federal Reserve, making short EUR/USD positions, such as buying puts on the pair, an attractive strategy.

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China’s central bank, the People’s Bank of China (PBOC), kept its interest rate decision in line with expectations. The reported rate was 3%.

The decision indicates no change to the stated policy rate level at this meeting. No further figures or policy details were provided in the update.

Market Reaction And Policy Focus

The People’s Bank of China holding its key lending rate at 3% was entirely priced into the market, so we should not expect any immediate shock. This lack of surprise means the focus for traders now shifts to future policy signals and upcoming economic data. The decision signals that authorities are prioritizing currency stability over aggressive economic stimulus for now.

Given the policy divergence with the West, where the US Federal Reserve is holding its own rate near 4.75%, we see continued pressure on the yuan. We saw this dynamic play out repeatedly in 2025, leading to a gradual depreciation of the currency. Therefore, traders could consider buying call options on the USD/CNH pair to hedge against or profit from further yuan weakness in the coming weeks.

For equity markets, the absence of a rate cut removes a potential catalyst for a major rally. With China’s Q1 GDP growth coming in at a modest 4.8% and March industrial output figures looking soft, we anticipate Chinese stock indices like the A50 will likely remain range-bound. This makes strategies like selling out-of-the-money call options on index futures attractive to generate income from a sideways market.

This steady policy stance also impacts commodities tied to Chinese growth, such as copper and iron ore. The hold suggests stable, but not accelerating, demand, which should keep a lid on prices. After a volatile period in late 2025, we could see commodity options volatility decline, presenting an opportunity to sell strangles on futures, betting that prices will not break out significantly in either direction.

Volatility Outlook And Next Catalysts

Implied volatility likely decreased right after the announcement, as a known event has now passed. We should now look towards the next major data release in May for a new catalyst. This is a good time to look at buying longer-dated, cheaper options to position for a potential increase in volatility later in the second quarter.

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The People’s Bank of China left the Loan Prime Rates unchanged on Monday. The one-year LPR stayed at 3.00% and the five-year LPR stayed at 3.50%.

At the time of writing, AUD/USD was down 0.25% on the day at 0.7151. The move followed the PBOC interest rate decision.

Policy Goals And Market Focus

The PBOC’s monetary policy aims include price stability, including exchange rate stability, and economic growth. It also works on financial reforms, such as opening and developing the financial market.

The PBOC is owned by the state of the People’s Republic of China. Its direction is influenced by the Chinese Communist Party Committee Secretary, and Pan Gongsheng holds both that role and the governor role.

Policy tools used by the PBOC include a seven-day reverse repo rate, the Medium-term Lending Facility, foreign exchange intervention, and the Reserve Requirement Ratio. The Loan Prime Rate is China’s benchmark, affecting loan, mortgage, and savings rates, and it can affect the renminbi exchange rate.

China has 19 private banks. The largest are WeBank and MYbank, and private-only funded domestic lenders have been allowed since 2014.

Rates Outlook And Trading Implications

Given today’s date, we see the People’s Bank of China is holding its one-year and five-year loan prime rates steady at 3.00% and 3.50%, respectively. This signals a cautious approach, as officials seem to be observing the effects of previous stimulus measures from 2025 before making any new moves. For traders, this suggests a period of policy stability, reducing the likelihood of unexpected market shocks from Beijing in the immediate future.

This decision comes as China’s Q1 2026 GDP growth was reported last week at 4.8%, slightly missing the official target of 5.0%. We also saw the most recent Caixin Manufacturing PMI for March 2026 hover at 50.9, indicating continued but unspectacular expansion. This mixed data supports the central bank’s decision to wait and see, as further rate cuts could pressure the yuan without guaranteeing a significant boost to growth.

For those trading currency derivatives, this stance will likely keep a lid on commodity-linked currencies like the Australian dollar. The AUD/USD, currently trading around 0.6720, may struggle to find momentum as China’s demand for raw materials remains stable rather than accelerating. Looking back at 2025, we recall how PBOC rate cuts helped support the Aussie dollar, but this current pause suggests strategies betting on a limited upside, such as selling out-of-the-money call options, could be prudent.

The impact extends to commodity markets, particularly industrial metals like copper and iron ore. With the PBOC not providing fresh stimulus, expectations for a surge in Chinese construction and manufacturing should be tempered. After its sharp decline in early 2025, iron ore has stabilized around $115 per tonne, and this central bank action suggests it may continue to trade within a range in the coming weeks.

This policy also reinforces the goal of maintaining a stable yuan, a consistent theme we observed throughout 2024 and 2025. By holding rates, the PBOC avoids widening the interest rate gap with the US Federal Reserve, thereby easing downward pressure on its currency. Derivative traders should anticipate lower implied volatility for the offshore yuan (USD/CNH), as authorities signal their preference for control over sharp movements.

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Iran’s military said the United States violated a ceasefire by firing at one of Iran’s commercial ships. It described the incident as maritime and armed robbery by the US military.

Iran’s military said it will soon respond and retaliate. No further details on timing or form of action were provided.

Oil Market Reaction

At the time of writing, West Texas Intermediate (WTI) was down 4.75% on the day at $87.90.

We must treat this threat of retaliation from Iran with extreme seriousness, as any disruption in the Strait of Hormuz creates immediate and significant upward pressure on oil prices. The current drop in WTI seems to be a market overreaction to unrelated demand fears, creating a clear opportunity. We believe the risk of a supply shock is not being priced in correctly.

This situation is reminiscent of the tensions we saw in late 2025, which caused a temporary 15% spike in Brent crude over two weeks. Given that over 20 million barrels of oil still pass through the strait daily, according to recent March 2026 figures from the EIA, any military action will have an immediate global impact. We should therefore be positioning for a sharp rise in oil price volatility.

The most direct strategy is to buy call options on June and July 2026 WTI and Brent crude futures. This provides upside exposure to a potential price spike while capping our risk to the premium paid. We should anticipate a rapid increase in implied volatility, making it prudent to establish these positions quickly.

Broader Risk Hedging

We should also look at the broader market’s fear gauge, the VIX, which is currently trading near a relatively calm level of 17. Historically, geopolitical shocks in the Middle East, like the 2019 attacks on Saudi facilities, have caused the VIX to surge above 25 almost overnight. Buying VIX call options for the coming weeks is an effective hedge against a wider market sell-off triggered by an oil crisis.

This risk-off environment would likely benefit defense contractors and hurt transportation and industrial sectors that rely heavily on fuel. We can express this view by purchasing call options on defense sector ETFs. At the same time, we should consider buying put options on airline and shipping company stocks that have significant exposure to rising fuel costs.

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USD/JPY stayed firm near 159.10 in early Asian trading on Monday, as the US Dollar rose against the Japanese Yen amid renewed US–Iran tensions after more than seven weeks of war in the Middle East.

Iran said it would not take part in new peace talks with the US, after President Donald Trump said Iranian negotiators would go to Pakistan on Monday for a second round of talks, according to Bloomberg.

Us Iran Tensions Drive Dollar Demand

Trump said the US Navy fired upon and seized an Iranian-flagged cargo ship, while Tehran warned that ships approaching the strait would be treated as breaching a ceasefire. Several vessels stopped crossings hours after Tehran said the waterway was open.

In Japan, comments from officials were cited as a factor that could limit further Yen weakness. Finance Minister Satsuki Katayama said last week she discussed foreign exchange matters with US Treasury Secretary Scott Bessent, and said authorities are prepared for “bold” action if needed.

The Japanese Yen is influenced by Japan’s economic performance, Bank of Japan policy, the gap between Japanese and US bond yields, and overall risk sentiment. The Bank of Japan ran ultra-loose policy from 2013 to 2024, then began to unwind it in 2024, while the US–Japan 10-year yield spread has started to narrow.

With the USD/JPY pair nearing the 159.10 level due to US-Iran tensions, we should consider short-term bullish strategies. The current geopolitical climate favors the US Dollar as the primary safe-haven asset. Implied volatility on one-month options has jumped to over 11%, reflecting the market’s anticipation of sharp moves, which traders can use through straddles or strangles.

Risks Near The 160 Level

However, we must be extremely cautious as we approach the 160 level, a key psychological barrier. We have seen what happened in the spring of 2024 when Japanese authorities intervened directly in the market, causing the pair to drop several yen in a matter of hours. This threat of “bold” action creates a significant risk, making protective puts a prudent hedge for any long positions.

The fundamental picture still suggests a stronger Yen over the medium term. The Bank of Japan’s policy normalization, started back in 2024, has continued, with the 10-year Japanese government bond yield now sitting at 1.3%, its highest level in over a decade. This slowly narrows the interest rate differential with the US, which should eventually pull the USD/JPY pair lower.

While the Yen is traditionally a safe-haven currency, the direct involvement of the US military is causing a flight to the US Dollar for now. This is a pattern we also observed during the initial phases of geopolitical conflicts in 2022. Therefore, any long-term bearish positions on USD/JPY should be patient, waiting for the current geopolitical premium on the dollar to fade.

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Gold (XAU/USD) fell to about $4,775 in early Asian trading on Monday, as markets assessed renewed tension between the US and Iran over the Strait of Hormuz. Bloomberg reported that Iran denied it would join new peace talks with the US, after President Donald Trump said negotiators would go to Pakistan on Monday for a second round.

Iran’s military said the Strait of Hormuz was closed to all commercial vessels. It also said it would target any ship approaching the strait until the US lifts its naval blockade of Iranian ports.

Rate Expectations And Safe Haven Dynamics

Expectations for US interest rate cuts this year have shifted towards a higher-for-longer approach, due to persistent inflation and Middle East instability. Gold is often sought during geopolitical uncertainty, but it pays no interest, which can reduce demand when rates are high.

Traders are watching the US Retail Sales report due on Tuesday for further direction. Retail Sales are forecast to rise 1.3% month on month in March, up from 0.6% in February.

With the Strait of Hormuz closed, we should first focus on the most direct impact, which is oil. Given that roughly 20% of the world’s total oil consumption passes through this strait, any prolonged closure will cause a dramatic price spike. Looking back at the “Tanker War” of the 1980s, we saw how disruptions in this exact area can send crude prices soaring, so buying call options on WTI and Brent futures is the most immediate and logical trade.

The slump in gold to $4,775 is a clear sign the market is prioritizing the Federal Reserve’s “higher-for-longer” interest rate policy over this new geopolitical threat. We saw this theme dominate markets all through 2025 as the Fed battled persistent inflation. This dip presents an opportunity to buy long-dated call options on gold, betting that as the conflict escalates, the safe-haven demand will eventually overwhelm concerns about interest rates.

Dollar Strength And Volatility Positioning

The strong US dollar, buoyed by high rates, creates another angle for us to trade. Nations heavily reliant on imported oil, like Japan and many in the Eurozone, will see their currencies suffer disproportionately from higher energy costs. Therefore, we should consider trades that favor the dollar against the yen and the euro, using options to manage risk while capitalizing on this divergence.

Overall market uncertainty is now extremely high, making a direct bet on volatility attractive. The Cboe Volatility Index, or VIX, has historically spiked during major geopolitical events, as it did during the onset of the pandemic in 2020. Buying calls on the VIX is a straightforward way to hedge our portfolios or speculate on widespread market fear in the coming weeks.

Finally, we must watch Tuesday’s US Retail Sales report closely, as it will be the first major data point in this new environment. A strong number will reinforce the Fed’s hawkish stance and the strong dollar, potentially pushing gold down further in the short term. A surprisingly weak report, however, could be the catalyst that shifts focus away from interest rates and back toward gold’s role as a safe haven.

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