Easing geopolitical tensions regarding crude oil supply offered some relief to investors. However, speculation that the Federal Reserve might hold off on rate cuts bolstered the US dollar, putting pressure on the Canadian dollar.

 

 

The conflict in the Middle East has now entered its third week, creating ripple effects across global markets. The United States has urged nations like China to assist in escorting merchant vessels through the Strait of Hormuz, a critical waterway for global oil transport, in an effort to alleviate pressure on oil prices.

Over the weekend, the U.S. launched strikes on military targets at Iran's key oil-export hub on Kharg Island, while issuing a warning of further actions against Iran’s energy infrastructure if interference with the strait persists.

U.S. Dollar / Canadian Dollar

Tensions eased on Monday as several tankers successfully navigated the Strait of Hormuz, sparking optimism that the vital route could soon fully reopen.

The surge in crude oil prices, a key export for Canada, provided a boost to the Canadian dollar. West Texas Intermediate (WTI) crude oil spot prices rose 2.1% this morning to reach $95.16 per barrel.

On the economic front, data released on Monday showed Canada’s headline inflation rate dropped more than expected, falling to 1.8% in February from 2.3% the previous month—its lowest level in almost a year. This decline follows a sharp downturn in the labor market, where 83,900 jobs were lost, pushing the unemployment rate up to 6.7%.

Meanwhile, Canadian housing starts showed some resilience, climbing 4.5% in February to an annualized rate of 250,900 units—up from 240,148 in January. However, the figure still fell shy of market expectations of 252,500 units.

Despite these developments, gains for the Canadian dollar were capped by strength in the U.S. dollar. The U.S. Dollar Index, which measures the greenback against a basket of major currencies, rose by 0.2% to 99.92 this morning.

As a result, the USD/CAD forex pair edged down to 1.3686 earlier today. 

 

 The daily timeframe chart indicates that the USDCAD pair has experienced a rebound over the last few days, climbing from a low of 1.3640 to its current level of 1.3915.

The pair has now reached the major support and resistance pivot point based on the Murrey Math Lines tool at 1.3916. Additionally, it has broken above the 50-day Exponential Moving Average (EMA). The Relative Strength Index (RSI) is also approaching overbought territory.

Given these factors, the most probable outcome is a continued upward movement, with bulls likely aiming for the key resistance level at 1.400. 

The US Dollar and Canadian Dollar pair is one of the most widely traded currency pairs, largely because of the extensive cross-border trade between the United States and Canada. The Canadian Dollar is often labeled as a commodity currency due to Canada's significant natural resource exports, particularly oil, which play a key role in its economy. As a result, the USDCAD remains a highly active and prominent currency pair in global forex markets. 

Associated currencies 

 

 

Key points to monitor: Investors are focusing on developments surrounding the ongoing US-Iran conflict and movements in the strategically critical Strait of Hormuz.

This week will also see several major global central banks convene for their respective monetary policy meetings, marking their first discussions since the onset of the Middle East tensions. Among these are the US Federal Reserve, the European Central Bank, the Reserve Bank of Australia, the Bank of Japan, and the Bank of England.

In addition, the Bank of Canada is set to announce its policy decision on Wednesday. Market expectations suggest the central bank will maintain the overnight target rate at its current level of 2.25%.