USD/CAD Market Update

USD/CAD Rallies to 1.3682 – Monday, March 02, 2026

Current Level: High-1.36s (24hr range 1.3641–1.3689)

USD/CAD is trading near 1.3682 on Monday morning, gaining 40 pips from the previous session as markets react to a dramatic escalation in Middle East tensions. The pair has traded quietly despite significant U.S. dollar strength across most G10 currencies, with the Canadian dollar outperforming due to surging oil prices and its status as a commodity currency. Markets are focused on the unfolding geopolitical crisis and its implications for energy markets, inflation expectations, and central bank policy paths.

Market Overview:

Risk appetite is sharply negative this morning as geopolitical tensions dominate market sentiment. Equity index futures have declined amid heightened concerns following the Iran strikes, while the U.S. dollar and gold have strengthened as investors seek safe-haven assets. Global bond yields are meaningfully higher, with Canadian government bonds up 7 to 8 basis points following the Iran attacks. Energy prices are stronger, with WTI crude hitting the highest level since June 2025 after the closure of the Strait of Hormuz disrupted global energy supplies. The combination of geopolitical risk and energy market disruption creates a complex backdrop for currency markets.

U.S. and Israel Strike Iran, Killing Supreme Leader:

Over the weekend, the United States and Israel conducted military operations against Iran, resulting in the death of Supreme Leader Ayatollah Ali Khamenei. Many senior leaders in the regime were killed, including the Minister of Defense, Chief of Staff of the Armed Forces, and Commander in Chief of the IRGC. In response, Iran launched strikes on multiple U.S. military bases in the region and hit facilities in Saudi Arabia and Qatar. The escalation triggered a sharp rise in oil prices following the closure of the Strait of Hormuz, which disrupted global energy supplies.

Qatar's state-owned energy company invoked force majeure this morning, pausing liquefied natural gas delivery after Iran hit some of its facilities with drone strikes. Authorities in Saudi Arabia shut production in the aftermath of an attack on the Ras Tanura oil refinery. Crude prices are up roughly 9 percent from Friday's close, while natural gas benchmarks in Europe and Asia have surged more than 30 percent. With shipping through the Strait of Hormuz grinding to a standstill and Gulf producers curtailing output, energy markets face significant supply disruption.

Canadian Dollar Outperforms as Mini-Dollar:

Despite U.S. dollar strength, USD/CAD has traded quietly in early sessions, with the pair hovering near the mid-1.36 level. With markets taking the Iran news as USD-positive, strategists point to the Canadian dollar's status as a mini-dollar as the main reason why CAD is outperforming in G10. The Canadian dollar benefits from both safe-haven flows that typically support the U.S. dollar and rising oil prices that support commodity currencies. This dual characteristic limits upside in USD/CAD even as the greenback strengthens broadly.

Currency moves have been relatively modest given the scale of the geopolitical shock, but are largely tracking countries' energy exposure. The yen, euro and pound are coming under selling pressure as investors downgrade economic growth prospects for energy-importing economies. The Canadian dollar, Norwegian krone, and U.S. dollar are outperforming in narrow trading ranges. The United States is broadly energy self-sufficient after the shale boom, providing relative insulation from such shocks, whereas the euro area, China, and Japan remain far more exposed due to their reliance on imported hydrocarbons.

Oil Price Shock Raises Inflation Concerns:

Strategists highlight two market impacts from the Iran conflict. First, an immediate risk-off reaction with the USD rallying, GBP and EUR lower, and safe havens supported with gold inching toward all time highs. Second, oil price shocks typically follow risk-off periods by 2 to 4 weeks, raising inflation concerns. Commodity currencies including AUD and CAD should outperform, but timing is uncertain and strategists prefer monitoring at this time. Bond yields shift higher as markets reprice sticky inflation, leading to slower rate cuts and potential rate hikes.

A sustained disruption in shipping through the Strait of Hormuz could keep energy prices elevated, raise inflation expectations, and filter into consumer price baskets across advanced economies, complicating central banks' efforts to ease policy. Market-implied odds on rate cuts from the Federal Reserve and the Bank of England are drifting lower, while expectations for rate hikes in the euro area and further policy normalization in Japan are edging higher, reflecting increasingly asymmetric inflation risks. Crude oil has seemingly broken out of a structural multi-year downtrend. If so, markets should be prepared for higher gas prices and stickier inflation.

Strategic Uncertainty Clouds Conflict Duration:

Confusion over Washington's objectives is casting doubt on both the scope and duration of the conflict, with President Donald Trump and his allies oscillating between limited aims such as curbing Tehran's nuclear and missile capabilities and more ambitious calls for regime change. This strategic ambiguity has been matched by shifting timelines, with the president alternately suggesting a campaign lasting days, weeks, or longer, even as U.S. and Israeli forces strike hundreds of targets and Iran retaliates across the Middle East.

Ultimately, the impact on the global economy and financial markets will hinge on whether Washington is seeking to achieve narrow military goals that allow for a swift declaration of success, or is pursuing the far more complex and uncertain task of reshaping Iran's political order. For markets and the global economy, the tumult could end in minutes, or last months. Events in the Middle East will undoubtedly dominate price action through the week, with hedgers advised to be prepared to seize opportunities and manage risks associated with a widening in trading ranges in the coming days.

Prime Minister Carney Seals India Uranium Deal:

Prime Minister Mark Carney sealed a $2.6 billion uranium contract with India during diplomatic talks in New Delhi today. The agreement will see Cameco Corp., headquartered in Saskatoon, deliver 9.9 million kilograms of uranium to support India's nuclear power sector. Carney and Indian Prime Minister Narendra Modi also initiated discussions on a Comprehensive Economic Partnership Agreement targeting $70 billion in bilateral trade by 2030, double current levels. The visit marks a diplomatic breakthrough following a two-year period of strained relations between the nations.

Canadian Data/Outlook:

Canada has no major economic data releases today, with the focus remaining on geopolitical developments and energy market dynamics. The Bank of Canada is expected to remain on hold at 2.25% through the remainder of 2026, with RBC forecasting the BoC overnight rate to remain at 2.25% through all of 2026. The central bank is comfortable at the bottom of the neutral range. However, the oil price shock from the Iran conflict could complicate the inflation outlook, potentially delaying any future rate cuts if energy prices remain elevated. The Canadian dollar faces a complex environment where geopolitical risk supports safe-haven flows while rising oil prices provide offsetting support through commodity linkages.

Fed Watch:

The Federal Reserve is expected to remain on hold at its next policy meeting on March 18, with investors expecting the Fed to maintain its current interest rate. Markets have priced no meaningful rate cuts before July. The oil price shock from the Iran conflict adds a new dimension to the Fed's inflation challenge. Structurally elevated inflation due to the oil price shock could lead to slower rate cuts and potential rate hikes if energy prices remain elevated for an extended period. Recent Fed minutes skewed decidedly hawkish, with several participants supporting a two-sided description of the committee's future interest rate decisions. This indicates that if inflation remains at above-target levels, the Fed is prepared to consider upward adjustments to the target range for the federal funds rate, rather than just maintaining or cutting them.

Technical Picture:

Resistance: 1.3728 (has capped recent gains and represents 61.8% retracement level), 1.3769 (pivot point for downtrend established since late November), 1.3856 (bullish reversal target if 1.3769 breaks)
Support: 1.3641 (24hr low), 1.3629 (initial support level), 1.3599 (secondary support), 1.3579 (trendline that must break to end corrective rally), 1.3482 (2026 low and critical support)
Outlook: The corrective rally since January 30 has twice been rejected at resistance of 1.3728, with a more significant resistance trendline at 1.3769 above serving as the pivot for the broader downtrend in place since late November. Bearish bias remains intact unless 1.3769 trendline breaks, which would generate a bullish trend reversal and shift focus to 1.3856. A bearish breakout below 1.3579 would bring this year's low of 1.3482 back into focus as the next downside target. RBC strategists expect a trading range of 1.3630 to 1.3700 for today.

Week Ahead:

The week ahead will be dominated by geopolitical developments in the Middle East, with markets focused on the duration and scope of the Iran conflict. Today's ISM Manufacturing PMI will provide insight into the U.S. goods-producing sector, though the data may be overshadowed by geopolitical concerns. Tuesday's JOLTS job openings data will offer a read on labor demand. Wednesday's ADP employment change serves as a preview for Friday's full employment report. The ISM Services PMI on Wednesday will be closely watched given the sector's importance to the overall economy. Friday's employment report, including non-farm payrolls expected at 65K versus 130K previous, unemployment rate forecast to hold at 4.3%, and average hourly earnings, will be the week's main economic event. Retail sales data on Friday will provide another read on consumer spending. For USD/CAD, the immediate question is whether geopolitical tensions and rising oil prices will push the pair toward resistance at 1.3728 or if safe-haven flows into the U.S. dollar will dominate and drive the pair higher.

Other Notes:

• NASA Overhauls Artemis Moon Program: NASA is overhauling its Artemis moon initiative with an accelerated timeline designed to compete with China's 2030 lunar landing goal. After multiple postponements of its planned 10-day lunar orbit mission due to technical setbacks, the space agency has unveiled a more aggressive schedule reminiscent of its 1970s programs. Under the revised plan, NASA will launch its first crewed lunar mission in 2028, with a second moon landing scheduled for later that year.
• Energy Markets Face Supply Disruption: With shipping through the Strait of Hormuz grinding to a standstill and Gulf producers curtailing output, crude prices are up roughly 9 percent from Friday's close, while natural gas benchmarks in Europe and Asia have surged more than 30 percent. Qatar's state-owned energy company invoked force majeure this morning, pausing liquefied natural gas delivery after Iran hit some of its facilities with drone strikes. The energy market disruption could have lasting implications for global inflation and economic growth.
• Safe-Haven Flows Support Gold: Safe havens are supported with gold inching toward all time highs as investors seek protection from geopolitical risk. The precious metal benefits from both the flight to safety and concerns about future inflation from higher energy prices. Silver and other precious metals are also showing strength in the current environment.
• Bond Yields Rise on Inflation Concerns: Global bond yields are meaningfully higher, with Canadian government bonds up 7 to 8 basis points following the Iran attacks. The move reflects market concerns that higher oil prices will lead to higher consumer price inflation, higher interest rates, and potentially rate hikes rather than rate cuts. The shift in rate expectations is most pronounced in energy-importing economies that face the largest inflation shock from higher oil prices.

Market Mood:

RSI Scale: <30 Oversold | 30-40 Risk-Off | 40-60 Neutral | 60-70 Risk-On | >70 Overbought

This commentary is provided for informational purposes only and should not be construed as investment, legal, or tax advice. Past performance is not indicative of future results. Please consult with qualified professionals before making any financial decisions. Vantry Capital Inc.