Usd Cad Holds Range Near Key Level
The US Dollar Index (DXY) held a bullish tone just below its highest level in over three months. This supported demand for USD/CAD. Iran’s Islamic Revolutionary Guard Corps said the Strait of Hormuz was closed to shipping and warned that any vessel trying to pass would be set on fire. The strait is a key oil transit route, and the move raised supply concerns. Oil prices remained within reach of their highest level since June 2025, which supported the Canadian dollar. This limited the scope for further USD/CAD gains. Markets are watching the US ADP private-sector employment report and the ISM Services PMI. Reaction may be limited as attention remains on geopolitical developments.Key Catalysts Could Break The Deadlock
We are seeing a classic standoff in the USD/CAD, with the pair struggling to break decisively from the 1.3700 level. The strong US Dollar is being directly challenged by elevated oil prices stemming from the escalating Middle East tensions. This creates a difficult environment for directional bets as the two opposing forces are keeping the pair tightly range-bound. The case for a stronger US Dollar is supported by hard data, as the latest Core PCE Price Index is holding stubbornly above 3%, keeping inflation fears alive. As a result, market odds for a Federal Reserve rate cut before July have now dropped below 40%, a significant shift from the sentiment we saw at the start of the year. This fundamental backdrop continues to provide a strong floor for the greenback against most currencies. On the other side, the closure of the Strait of Hormuz has pushed WTI crude to hold firm above $95 a barrel, its highest level since the spike in mid-2025. This provides significant support for the commodity-linked Canadian dollar and explains why every attempt for USD/CAD to rally has been quickly sold off. Until the global oil supply situation is clarified, it is difficult to see the Loonie weakening substantially. From our perspective, this reminds us of the market volatility seen back in 2022 when geopolitical events first caused a major energy price shock. Back then, the US Dollar also benefited from safe-haven flows, creating a similar tug-of-war for the USD/CAD pair. History suggests these situations can persist for weeks, defined by sharp moves within a broader range. For derivative traders, this suggests that long volatility strategies could be profitable in the coming weeks. Buying straddles or strangles allows us to profit from a large price move in either direction, which seems more likely than a sustained trend. One-month implied volatility for the pair has already climbed to 8.5%, reflecting this market uncertainty. Looking ahead, the upcoming US Non-Farm Payrolls report and the next CPI inflation reading will be critical for the US Dollar. Similarly, the Bank of Canada’s upcoming policy statement will be closely watched for any change in tone due to higher energy prices. These events will likely be the catalysts that finally break the current deadlock. Create your live VT Markets account and start trading now.
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