USD/CAD Market Update

USD/CAD Tumbles to 1.3665 – Wednesday, March 04, 2026

Current Level: Mid-1.36s (24hr range 1.3644–1.3700)

USD/CAD is trading near 1.3665 on Wednesday morning, declining 67 pips from the previous session as the pair pulls back sharply from Tuesday's highs. The move comes as markets react to reports that Iran has reached out to the CIA to discuss potential terms for ending the conflict, triggering a rapid improvement in sentiment and a pullback in energy prices. The U.S. dollar is weaker across the G10 basket as safe-haven flows reverse, while the Canadian dollar faces pressure from falling oil prices despite its commodity currency characteristics.

Market Overview:

Risk appetite is improving this morning as traders monitor developments from the Middle East. Equity markets are opening higher following reports that Iran's Intelligence Ministry reached out to the CIA on Sunday, suggesting ongoing talks to reduce tensions. The U.S. dollar is dropping to session lows as safe-haven demand unwinds. Global bond yields are mixed, with Canadian government bonds showing modest moves. Energy prices are moderating, with Brent crude pulling back from recent highs above $83 per barrel after President Trump indicated the U.S. Navy could provide security for tankers navigating the Strait of Hormuz. The shift in sentiment marks a sharp reversal from Tuesday's risk-off tone.

Iranian Outreach Signals Potential De-escalation:

The main story of the day comes from reports that Iran's Intelligence Ministry reached out to the CIA on Sunday, a day after the conflict began. While retrospective, the new information suggests there may be ongoing talks to reduce tensions, possibly ending the conflict sooner rather than later. Markets are interpreting this as a positive development, with sentiment recovering and oil prices moderating on hopes of a swift end to the conflict. Prediction markets now show a 56 percent chance of a ceasefire by April 30, according to data cited in source reports.

In this scenario, many market participants expect oil prices to fall back to $65 per barrel as markets price out a prolonged conflict. Should the war continue, however, expectations are for oil prices to climb back to $80 per barrel. If attacks intensify and disruption in the Strait of Hormuz persists, oil could top $100 per barrel in a worst-case scenario. The administration is highly motivated to cap the timeline of this conflict, seeking to avoid a drawn-out entanglement that damages both the housing market and consumer sentiment just as voting season approaches.

Energy Markets Pull Back on De-escalation Hopes:

Oil prices have moderated following President Trump's announcement that the U.S. will provide insurance guarantees and naval escorts to ensure safe passage for oil tankers through the Strait of Hormuz. While the shipping industry remains cautious, viewing this as only a partial solution to a complex crisis, the move has successfully signaled a commitment to decoupling the conflict from global energy prices. Brent crude rose a further 3 percent to $83.9 per barrel before pulling back on the ceasefire headlines.

Iraq announced that it is shutting in around 1.5 million barrels per day of its production because of storage constraints. Attacks on the UAE's Fujairah port facility underscore the limitations of any alternate export routes that avoid the Strait of Hormuz. Qatar's gas and associated product problems are also persisting, heightening the economic pain for its key import markets in Europe and Asia. Despite these ongoing disruptions, the shift in sentiment toward potential de-escalation has taken pressure off energy markets.

Canadian Dollar Caught Between Conflicting Forces:

The Canadian dollar faces a complex environment where falling oil prices weigh on the currency despite broad U.S. dollar weakness. USD/CAD's reaction and price action has been extremely benign over the course of the Iran conflict because risk-off flows, which hurt the CAD, are offset by higher commodity prices. Now that the risk-off trade is unwinding and oil prices are pulling back, the Canadian dollar is losing support from both factors. In terms of direction, near-term expectations are for a small range of 1.3650 to 1.3720 as traders digest what's next.

The Canadian dollar continues to outperform the euro and pound, pushing both EUR/CAD and GBP/CAD to their lowest levels since July of last year. This market behavior reflects the split between oil exporters and oil importers, with exporters showing clear strength even as the conflict dynamics shift. The fact that the Canadian dollar held its ground during the peak risk-off period highlights how much the market values energy independence, though the current pullback shows the limits of that support when oil prices decline.

U.S. Services Sector Data Due Today:

U.S. data releases today include ADP Non-Farm Employment Change at 5:15am, with a forecast of 50K versus 22K previous. The ISM Services PMI follows at 7:00am, with a forecast of 53.5 versus 53.8 previous. These releases will provide insight into the services sector, which represents the bulk of the U.S. economy. The ADP report serves as a preview for Friday's full employment report. Markets will be watching for any signs of weakness that could shift Federal Reserve policy expectations, though geopolitical headlines may overshadow the data.

Canadian Data/Outlook:

Canada has no major economic data releases today, with the focus remaining on geopolitical developments and energy market dynamics. After the recent release of Q4 GDP, which showed a 0.2 percent contraction in the quarter driven primarily by inventory adjustments, the Canadian economy navigated a delicate transition in 2025, posting a 1.7 percent increase in real GDP for the full year. The Bank of Canada is expected to remain on hold at 2.25 percent through the remainder 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, though the recent moderation in energy prices may ease those concerns if the conflict de-escalates quickly.

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 dimension to the Fed's inflation challenge, though the recent moderation in energy prices may provide some relief if the conflict ends quickly. 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. Market-implied odds on rate cuts from the Federal Reserve are drifting lower as the inflation outlook remains uncertain.

Technical Picture:

Resistance: 1.3700 (24hr high), 1.3728 (has capped recent gains on three occasions, marking 61.8 percent retracement level), 1.3759 (resistance trendline serving as pivot for downtrend since late November), 1.3856 (bullish reversal target if 1.3759 breaks)
Support: 1.3644 (24hr low), 1.3629 (initial support level that held following Friday's test), 1.3617 (trendline support that must break to end corrective bounce and reinstate downtrend), 1.3550 (1 to 3 month technical target), 1.3482 (2026 low and critical support)
Outlook: The corrective rally from January 30 was turned back yesterday at 1.3728 amid escalating Iran conflict, marking the third failure at this level. A resistance trendline at 1.3759 serves as the pivot for the downtrend in place since late November. The bearish bias toward fading rallies remains intact unless this level breaks. A sustained move above 1.3759 would constitute a bullish trend reversal, negating the downtrend and opening the path toward 1.3856. While initial support at 1.3629 held following Friday's test, a break below the more significant trendline support at 1.3617 is required to end the corrective bounce and reinstate the dominant downtrend. Such a bearish breakout would refocus attention on this year's low at 1.3482. The 1 to 3 month objective remains at 1.3550.

Week Ahead:

The week ahead will be dominated by geopolitical developments in the Middle East, with markets focused on whether the reported Iranian outreach leads to a genuine ceasefire or proves to be a tactical maneuver. Today's ADP employment change and ISM Services PMI will provide insight into the U.S. labor market and services sector, though the data may be overshadowed by geopolitical concerns. Thursday's unemployment claims will offer another read on labor market conditions. Friday's employment report, including non-farm payrolls expected at 59K versus 130K previous, unemployment rate forecast to hold at 4.3 percent, and average hourly earnings, will be the week's main economic event. Retail sales data on Friday will provide another read on consumer spending. The following week brings U.S. CPI data on Wednesday and Canadian employment data on Friday. For USD/CAD, the immediate question is whether the de-escalation narrative will push the pair back toward support at 1.3617 and 1.3550, or if renewed geopolitical tensions will drive the pair higher toward resistance at 1.3728 and 1.3759.

Other Notes:

• Prime Minister Carney Urges Reduction in Middle East Tensions: Prime Minister Mark Carney has urged a reduction in Middle East tensions during an Australia visit focused on strengthening trade relationships. The Prime Minister expressed support for the initial U.S.-Israeli strike on Iran, though he characterized it as regrettable, viewing it as evidence of breakdown in the international order. Iran responded with attacks on multiple neighboring states, prompting Canadian authorities to issue travel warnings for several Middle Eastern countries. Ottawa has also asked Oman to provide evacuation support or assistance for up to 100,000 Canadian citizens in the region should the need arise.
• Equity Markets Recover on De-escalation Hopes: Investor confidence is improving as Middle East conflict shows signs of potential de-escalation. Canada's benchmark stock index dropped over 700 points on Tuesday, closing down 2.19 percent, with traditional safe-haven assets including gold and energy equities declining amid regional instability. U.S. markets saw similar pressure, with the Dow falling as much as 1,200 points intraday before recovering somewhat to close 400 points lower. Today's session is seeing a reversal of those moves as sentiment improves.
• South Korea's KOSPI Suffers Worst Day Ever: South Korea's KOSPI crashed by over 12 percent on Tuesday, taking its two-day loss to a staggering 18 percent and wiping out $625 billion in market value. The index had circuit breakers activated and closed down 12 percent, with the KOSDAQ down 14 percent. While the index remains up 21 percent for the year, the recent crash highlights the risks of a market dominated by leveraged retail investors. The world's hottest stock market is facing a reality check.
• EUR/USD Recovers on Dollar Weakness: The euro is recovering against the U.S. dollar as safe-haven flows reverse. The U.S. dollar is weaker versus the entire G10 basket as the recovery in sentiment weighs against the greenback. The consensus continues to call for broad based USD weakness, according to updated five-bank forecasts cited in source reports. EUR/CAD and GBP/CAD remain at their lowest levels since July of last year as the Canadian dollar continues to outperform European currencies.
• Precious Metals Supported After Tuesday's Selloff: Precious metals are recovering as silver and gold bounce back from yesterday's selloff. Gold had fallen more than 5 percent on Tuesday in a rare simultaneous move where gold fell sharply, the S&P 500 dropped more than 2 percent, and the U.S. Dollar Index rose more than 1 percent. Before yesterday, there have been only two days in the last 25 years where these three moves happened at once, indicating a massive scramble for cash and a total flight from risk.

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.