USD/CAD held near 1.3640 in Asian trading on Friday, after rising by more than 0.25% in the prior session. The Canadian Dollar was steady as oil prices eased. WTI slipped slightly after jumping more than 9% in the previous session, trading near $95.00 a barrel. US crude prices are up more than 40% since the war began.

Strait Of Hormuz Risk Escalates

Oil prices may keep rising after the Strait of Hormuz was effectively closed during an escalating conflict involving the US, Israel and Iran. The International Energy Agency said the US-Israeli war on Iran is “creating the largest supply disruption in the history of the global oil market.” Iran’s new supreme leader, Mojtaba Khamenei, said the Strait of Hormuz closure should continue as a “tool to pressure the enemy.” He also warned that US military bases in the region should close immediately or face possible attacks. USD/CAD declines may be limited if the US Dollar stays supported by expectations the Federal Reserve will leave rates unchanged next week. The benchmark federal funds rate is currently 3.50%–3.75%. Markets are also awaiting January’s Personal Consumption Expenditures Price Index later on Friday. Attention is also on the first revision of fourth-quarter US GDP growth and March consumer confidence.

Usd Cad Tug Of War

The market is seeing a major tug-of-war on the USD/CAD pair around the 1.3640 level. We have West Texas Intermediate crude holding near $95 a barrel, which should be driving the Canadian dollar much stronger. However, the flight to safety amid the Mideast conflict is keeping the US dollar in high demand. The closure of the Strait of Hormuz is the dominant factor, choking off roughly a fifth of the world’s daily oil supply, a disruption unseen in decades. Historically, events like the 1973 oil crisis caused prices to quadruple, and Iran’s new leadership suggests this supply disruption is a long-term policy. This ongoing shock means we must prepare for oil prices to remain elevated or even climb higher. On the other side, the Federal Reserve’s firm stance on holding interest rates at 3.50-3.75% provides a strong floor for the greenback. The ongoing war is creating immense risk-off sentiment, pushing capital into US assets for safety. This counteracts the positive pressure on the loonie from oil prices. Given this uncertainty, we believe trading direction outright is extremely risky, and the focus must shift to volatility. Implied volatility on USD/CAD options has surged, with currency volatility indexes showing a more than 30% jump since the conflict escalated last month. Strategies that benefit from large price swings, such as long straddles, are becoming more attractive for hedging against sharp, unpredictable moves. We are witnessing a breakdown in the typical inverse correlation between oil prices and the USD/CAD pair. Looking back at data from 2025, that relationship was consistently strong, but the current safe-haven demand for the US dollar is overriding it. This means historical models based purely on oil prices are likely to be unreliable in the coming weeks. Create your live VT Markets account and start trading now.

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