USD/CAD traded near 1.3685 on Friday, down 0.12% on the day. The move came as the US Dollar weakened despite ongoing geopolitical risks.
The US Dollar Index fell 0.17% to 98.65 after signs of easing tensions between the US and Iran. Al Arabiya reported that Iran’s foreign minister Seyed Abbas Araghchi will arrive in Islamabad on Friday with a small delegation for a second round of peace talks with the US.
Lower demand for safe-haven assets weighed on the Dollar, while risk-sensitive markets found some support. Risks linked to the Strait of Hormuz and energy flows remain.
The Canadian Dollar gained support from higher energy prices, which matter for Canada’s economy. TD Securities expects the Bank of Canada to use higher oil price assumptions in its next Monetary Policy Report, with WTI projected around $85.
That oil level would be a sharp rise from earlier estimates. TD Securities said it could lift inflation towards 3% in the second quarter of the year.
Commerzbank expects the Federal Reserve to keep rates unchanged in the 3.50%–3.75% range for now. Rate cuts are still expected later in the year, which may keep the US Dollar under pressure.
Scotiabank reported that USD/CAD remains in a bearish pattern, limiting rebounds. Stretched US Dollar valuations may also limit short-term gains in the pair.
Looking back at the analysis from mid-2025, we saw a clear setup for a weaker USD/CAD driven by a softer US dollar and higher oil prices. The expectation was that de-escalating geopolitical tensions and a cautious Federal Reserve would weigh on the greenback. That view was largely validated through the second half of the year.
The Federal Reserve did begin its cutting cycle in late 2025, trimming rates by 50 basis points and pushing the US Dollar Index (DXY) from the high 90s toward 94. This policy shift was the primary driver that weakened the US dollar against most major currencies. In Canada, inflation did temporarily tick up toward 3% as oil prices rose, just as predicted.
WTI crude oil prices followed the projected path, briefly touching $90 per barrel last fall and providing a significant tailwind for the Canadian economy. As a result, we saw USD/CAD fall from the 1.3685 level to test lows near 1.32 by the end of 2025. This rewarded derivative positions that were bearish on the pair, such as buying puts or selling futures.
However, the environment today on April 24, 2026, requires a different approach as those trends have started to stall. WTI crude has since pulled back to about $78 a barrel, according to the latest CME Group data, due to signs of slowing global industrial activity. This removes a key pillar of support for the Canadian dollar that we relied on last year.
With the Fed now signaling a pause in its cutting cycle to assess economic data, the aggressive US dollar weakness has faded. Traders should now consider strategies that protect against a rebound in the pair. Buying call options on USD/CAD with a strike price around 1.3600 could offer upside exposure if the pair continues its recent recovery from this year’s lows.
The Bank of Canada has also held its policy rate steady, mirroring the Fed’s current stance and reducing the interest rate advantage that previously favored the loonie. This policy convergence suggests the period of strong directional momentum is likely over for now. We see less incentive for a stronger CAD, meaning range-trading strategies or positioning for a gradual grind higher in USD/CAD may be more prudent in the weeks ahead.
