USD/CAD rose for a second day, trading near 1.3590 in Asian hours on Monday. The move came as the Canadian Dollar weakened alongside falling oil prices.
WTI traded around $98.50 per barrel and stayed in negative territory for a third straight day. Oil prices came under pressure after a Bloomberg report on Sunday said Donald Trump stated the US would start guiding neutral ships trapped in the Persian Gulf out through the Strait of Hormuz from Monday.
Strait Of Hormuz Tensions
Ebrahim Azizi, a former Islamic Revolutionary Guards Corps commander and head of Iran’s parliamentary National Security and Foreign Policy Committee, said US involvement in a new maritime regime in the Strait of Hormuz would be viewed as a ceasefire violation. He also said the Strait of Hormuz and the Persian Gulf are not a place for rhetoric.
USD/CAD gains were described as potentially capped as the US Dollar softened amid lower safe-haven demand and ongoing US–Iran peace efforts. The war in Iran has entered its third month, and Bloomberg reported Trump indicated Tehran’s latest peace proposal may not meet expectations.
Axios, citing sources familiar with the matter, reported Iran proposed a one-month deadline for talks. The aim would be to reopen the Strait of Hormuz and end both the US naval blockade and the conflicts in Iran and Lebanon.
Looking back, we remember the market sentiment in 2025 when USD/CAD was climbing towards 1.3600. At that time, West Texas Intermediate crude was struggling below $100 a barrel due to hopes of de-escalation in the Persian Gulf. The situation today has evolved significantly from that period.
Oil Volatility And Cad Outlook
The fragile peace negotiations discussed last year ultimately broke down, and the proposed one-month deadline for reopening the Strait of Hormuz passed without a resolution. Renewed incidents in the strait over the past year have reintroduced a significant risk premium into energy markets. This has completely reversed the trend we observed in 2025.
As a result, crude oil volatility has spiked, with WTI now trading near $118 a barrel, far from the levels seen when the US was guiding ships. Recent data from the CME Group shows implied volatility on front-month oil options is elevated at 45%, reflecting persistent market anxiety. This is a stark contrast to the easing safe-haven demand we noted last year.
This sustained rally in energy has been a major tailwind for the loonie, causing USD/CAD to fall and currently trade around the 1.2800 handle. The Canadian dollar’s strength, fueled by oil, is overpowering the general safe-haven demand for the US Dollar. The Bank of Canada’s economic outlook has cited higher energy export revenues as a key factor supporting the domestic economy.
Given the ongoing geopolitical uncertainty, traders should consider strategies that benefit from large price swings. Long volatility plays, like buying straddles or strangles on crude oil futures, could be effective in this environment. This allows a trader to profit from a significant price move, regardless of the direction.
For those anticipating continued tension, purchasing call options on WTI provides upside exposure to oil with a defined risk. To complement this, buying put options on USD/CAD is a direct way to speculate on further Canadian Dollar strength. This combination hedges on the core theme of high energy prices driving the currency pair.
