The US Dollar was the third best-performing G10 currency, while the Canadian Dollar outpaced it by 0.28%. USD/CAD closed at 1.37, indicating stronger CAD performance on the day.
Higher oil prices supported higher US Treasury yields and a mild steepening in the curve. The 2-year yield closed up 1.2bp and the 10-year yield rose 2.2bp.
Canadian Trade Minister Dominic LeBlanc referred to work to resolve trade issues raised by Ambassador Greer. These include disputes linked to Canada’s supply-managed dairy sector, ahead of the USMCA review period this summer and talks in Mexico City on Monday.
Canada is due to report March housing starts, with expectations of 258,000 units versus 250,900 previously. International securities transactions data for February is also scheduled, following a prior reading of CAD 46.73b.
Looking back at the situation in 2025, the Canadian dollar showed notable strength, pushing the USD/CAD exchange rate down to 1.37. This was largely fueled by rising oil prices and optimism surrounding trade talks before the USMCA review. We now see a different picture, as that short-term strength has since faded.
The support from energy markets we saw last year is less certain today. While West Texas Intermediate (WTI) crude was trading above $85 per barrel during that period of CAD strength in 2025, prices have since softened to around $79 per barrel as of mid-April 2026 due to concerns over slowing global demand. This removes a key pillar that was previously supporting the Canadian currency against the greenback.
Furthermore, the optimism surrounding the USMCA trade review in the summer of 2025 did not fully resolve underlying tensions, particularly concerning the dairy and lumber sectors. These lingering trade frictions continue to create headwinds for Canadian exporters, making long-term bets on CAD strength a riskier proposition than it appeared last year. This ongoing uncertainty suggests a more cautious stance is now warranted.
The interest rate difference between the Bank of Canada (BoC) and the U.S. Federal Reserve has also become a more significant driver. With the BoC having cut its policy rate to 3.75% to stimulate a slowing domestic economy, the Fed’s rate has held firmer at 4.25%, widening the yield differential in favor of the U.S. dollar. This policy divergence makes holding U.S. dollars more attractive than it was previously.
Given these factors, we are positioning for potential USD strength against the CAD in the coming weeks. Derivative strategies should focus on a move higher in the USD/CAD pair, potentially using call options to capitalize on a test of the 1.39 level. This approach hedges against the diminished support from oil and the unfavorable interest rate environment for the loonie.
