USD/CAD held near 1.3700 in late Asian trading on Monday, keeping Friday’s rebound in place. The move came as renewed doubts about the US–Iran temporary ceasefire supported demand for the US Dollar.
The US Dollar Index (DXY) rose 0.1% to about 98.30. Iran said it will not restart talks with the US, referring to “excessive demands, unrealistic expectations, constant shifts in stance, repeated contradictions, and the ongoing naval blockade”.
In Canada, markets are watching March Consumer Price Index (CPI) data due at 12:30 GMT. Headline CPI is forecast to rise 1.1% month-on-month, up from 0.5% in February.
USD/CAD was marginally higher around 1.3700 at the time of writing. It remained below the 20-day exponential moving average at 1.3780, which kept the near-term bias negative.
The Relative Strength Index stood at 38.8, close to oversold levels. Resistance is at 1.3780, while support is near 1.3650 and then 1.3530 if 1.3650 breaks.
The technical section was produced with help from an AI tool.
We remember this time last year, in April 2025, when USD/CAD was hovering around 1.3700. The focus then was on US-Iran tensions boosting the dollar’s safe-haven appeal, even as we awaited a hot Canadian inflation report. It was a market driven by geopolitical fear more than economic data.
Today, the situation has evolved, with the pair now trading much firmer near 1.3950. The primary driver is no longer just a flight to safety but a clear divergence in central bank policy that has become more pronounced over the past year. We are now seeing the US Federal Reserve hold rates steady while the Bank of Canada signals potential cuts.
This policy gap is backed by recent data showing Canadian CPI for March 2026 came in at just 0.3% month-over-month, below expectations and slowing the annual rate to 2.1%. In contrast, the latest US inflation figures remain sticky above 3.5%, giving the Fed little room to ease policy. This fundamental divergence suggests continued strength for the US dollar against the loonie.
For derivative traders, this environment supports strategies that profit from a continued upward grind in USD/CAD. Buying call options with a strike price around 1.4050 for the coming weeks offers a way to capitalize on this momentum. This allows for upside exposure while defining the maximum risk to the premium paid.
Given that one-month implied volatility has ticked up to 8.5% on this policy uncertainty, outright calls can be expensive. A more cost-effective approach would be a bullish call spread, such as buying the 1.4000 call and selling the 1.4150 call. This strategy caps potential gains but significantly reduces the initial cash outlay.
We must also consider risks that could reverse the trend, such as a surprisingly strong Canadian jobs report or a sudden dovish shift from the Fed. Traders looking to hedge long Canadian asset exposure could consider buying put options below the 1.3800 level. This would offer protection if the recent support levels fail to hold and the pair reverses course.
