USD/CAD edged lower on Monday as the Canadian Dollar strengthened amid changing headlines on the US-Iran war. The pair traded around 1.3921, staying near four-month highs. Market sentiment improved in Asia after reports of a possible 45-day ceasefire, which put mild pressure on the US Dollar. The US Dollar later recovered part of its move as mixed reports kept uncertainty high.

Dollar Index And Iran Response

The US Dollar Index traded near 99.98 after rising from an intraday low around 99.76. Iran called for a permanent end to the war, according to IRNA, while rejecting a ceasefire framework sent via Pakistan. A US official cited by Axios said Iran delivered a 10-point reply to the US proposal and labelled it “maximalist”. The official said it was unclear whether the response could support a diplomatic outcome. President Donald Trump set a deadline for reopening the Strait of Hormuz by Tuesday at 8:00 p.m. Eastern Time. He warned of possible strikes on power plants and other civilian infrastructure if it is not reopened. Oil price rises added to inflation pressure and growth concerns, affecting the policy outlook for the Fed and BoC. US ISM Services PMI for March was 54, down from 56.1, and below 55.

Key Data And Market Focus

This week includes US CPI for March, US PCE Price Index for February, and Canada’s March employment data. The article was corrected on April 6 at 17:15 GMT to confirm 1.3921, not 1.1315. We recall this time in 2025 when tensions between the US and Iran created sharp, unpredictable moves in the currency markets. The USD/CAD pair was pushed to multi-month highs near 1.39 as conflicting headlines about ceasefires and escalations kept traders on edge. That period of uncertainty showed us how geopolitical risk can quickly overshadow economic fundamentals. Today, we see a similar pattern emerging, with renewed friction in the Strait of Hormuz pushing Brent crude oil prices back above $95 per barrel for the first time this year. The Cboe Volatility Index (VIX), a key measure of market fear, has also climbed to 21, reflecting a nervousness we haven’t seen in months. This has helped lift USD/CAD back toward the 1.38 level, as traders again seek the relative safety of the US Dollar. Given the whiplash we saw in 2025 from diplomatic rumors, buying volatility seems like a prudent strategy for the coming weeks. Options strategies like straddles on USD/CAD could be effective, as they profit from a large price swing in either direction without needing to predict the outcome of negotiations. One-month implied volatility for the pair has already risen from 7% to over 9% in the last two weeks, suggesting the market is bracing for a move. We are also watching for this week’s US Consumer Price Index (CPI) and Canadian employment data, just as we were in 2025. A hot inflation number in the US, especially after last month’s came in at a sticky 3.3%, could amplify US Dollar strength by putting pressure on the Federal Reserve. A weak Canadian jobs report would only add fuel to a potential breakout above the 1.39 resistance level. The relationship between oil prices and the Canadian Dollar is critical but can be misleading during these times. Historically, like in the initial months of the 2022 Ukraine conflict, a flight to safety can cause the US Dollar to strengthen even as rising oil prices should theoretically support the CAD. Derivative traders should be cautious about assuming the petro-currency link will hold, as risk aversion is currently the dominant market force. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account