USD/CAD fell as the US Dollar eased on improved risk mood after reports raised expectations of a Middle East ceasefire. The pair traded near 1.3920 during European hours on Monday. A Reuters source said the US and Iran received a proposed framework to end hostilities, with a two-step plan of an immediate ceasefire followed by a wider agreement. Pakistan’s army chief, Field Marshal Asim Munir, was reported to be in ongoing contact with US Vice President JD Vance, special envoy Steve Witkoff, and Iran’s Foreign Minister Abbas Araghchi.

Ceasefire Signals And Shipping Risks

Tehran said it would not reopen the Strait of Hormuz under a temporary ceasefire arrangement. Iranian media also reported plans to impose a toll on tankers leaving the Persian Gulf. The move in USD/CAD may be limited because the Canadian Dollar can weaken when oil prices fall. Crude eased after Bloomberg cited an Axios report saying the US, Iran and regional mediators were discussing terms for a potential 45-day ceasefire, one day after US President Donald Trump threatened to rain “hell” on Tehran if it did not make a deal. Lower oil prices reduced concerns about an energy-driven inflation surge and the chance that the Bank of Canada keeps rates restrictive for longer. We remember looking back in 2025 when talks of a ceasefire in the Middle East caused the US Dollar to soften, pushing USD/CAD down toward 1.3900. At that time, easing crude oil prices put a floor under the pair, as it weakened the Canadian dollar. The market’s primary focus was on the geopolitical risk premium being removed from oil.

Oil And Volatility Shift The Balance

That period of calm allowed the Bank of Canada to eventually lower rates, with the national unemployment rate having since climbed to 6.2% as of last month’s data. However, the dynamics we see today in April 2026 are shifting once again. The ceasefire has proven fragile, and oil prices are no longer a headwind for the loonie. WTI crude has steadily climbed in recent weeks, now trading above $86 per barrel, its highest level this year, on renewed concerns over shipping security in the Persian Gulf. This is providing underlying support for the Canadian dollar that was absent during the events of 2025. This strength in oil is now a dominant factor, unlike last year when de-escalation was the main driver. We are seeing a marked uptick in implied volatility for USD/CAD options, with 30-day volatility rising by nearly 20% over the past month. This suggests the market is pricing in a greater chance of sharp moves than it was in the first quarter of 2026. Traders should therefore anticipate wider trading ranges in the weeks ahead. Given the conflicting pressures, traders could consider buying options to protect against, or profit from, these larger swings. Buying short-term USD/CAD put options offers a way to position for a stronger Canadian dollar driven by firm oil prices. This strategy allows for defined risk if geopolitical tensions flare up again and cause a flight to the safety of the US Dollar. Create your live VT Markets account and start trading now.

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