USD/CAD traded near 1.3670 on Thursday and was almost unchanged on the day. Trading stayed range-bound ahead of the United States S&P Global PMI releases.
The Canadian Dollar found support from higher oil prices linked to rising tensions in the Middle East. West Texas Intermediate rose for a fourth straight day and traded near $92.70 a barrel on supply disruption concerns.
Supply worries centred on events involving Iran and the United States near the Strait of Hormuz. Reports also referred to incidents involving vessels and the continuation of a US naval blockade.
The Canadian Dollar’s gains were limited by a firmer US Dollar in a risk-off setting. The US Dollar was supported by ongoing geopolitical uncertainty and little progress in diplomatic efforts.
Federal Reserve expectations also influenced trading. Markets expected limited rate cuts, while strong US data and continuing inflation pressure, including from energy, supported a cautious Fed stance.
Attention then shifted to April S&P Global PMI readings from the United States. These data were the next key items on the calendar.
We have to remember the market dynamic back in 2025, when USD/CAD was locked in a tight range around 1.3670. At that time, high oil prices driven by Middle East tensions were the main force supporting the Canadian dollar. The situation today, on April 23, 2026, has evolved significantly, presenting new opportunities.
The geopolitical risk premium in oil has faded since the naval confrontations we saw in 2025. With diplomatic channels having eased the immediate supply threats around the Strait of Hormuz, West Texas Intermediate is now trading closer to $78 per barrel, a sharp drop from the $92 levels seen then. This has removed a key pillar of support for the loonie, allowing USD/CAD to drift higher toward the 1.3850 mark we see today.
The driver for the US dollar has also shifted from pure safe-haven demand to a story of monetary policy divergence. While the Federal Reserve delivered two rate cuts in late 2025, recent data shows stubborn services inflation, forcing them into a hawkish pause. In contrast, the Bank of Canada is facing a weaker housing market, increasing the probability that its next move will be a rate cut, further widening the policy gap in favor of the USD.
Current economic indicators are now flashing different signals than last year. The latest S&P Global PMI for the US unexpectedly dipped to 49.5, indicating a slight contraction and suggesting the Fed’s tightening may finally be cooling the economy. This presents a risk to the dollar’s recent rally and suggests we should consider strategies that protect against a potential pullback in USD/CAD.
Given this, we should look at buying out-of-the-money CAD calls with summer expiry dates. Implied volatility is much lower now than during the geopolitical flare-up of 2025, making options relatively cheap. This offers a low-cost way to position for a potential surprise strengthening in the Canadian dollar if US economic data continues to soften.
