USD/CAD Market Update

USD/CAD Surges to 1.3732 – Tuesday, March 03, 2026

Current Level: High-1.37s (24hr range 1.3661–1.3732)

USD/CAD is trading near 1.3732 on Tuesday morning, gaining 50 pips from the previous session as markets react to a dramatic escalation in Middle East tensions. The pair has pushed to its highest level in several sessions as geopolitical risk dominates market sentiment, with the U.S. dollar strengthening broadly as a safe-haven asset while oil prices surge on supply disruption fears. Markets are focused on the unfolding 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 slam sentiment. Equity markets are plunging lower, with the South Korean KOSPI hitting limit down and triggering circuit breakers. The U.S. dollar is stronger across the entire G10 basket as the greenback attracts safe-haven flows. Global bond yields are meaningfully higher, with Canadian government bonds up another 10 basis points following the Iran attacks. Energy prices are surging, with Dutch and British gas futures up nearly 80 to 90 percent since the weekend, and Brent oil up 15 percent over the same timeframe. Precious metals are surprisingly weaker despite the risk-off tone, with gold and silver selling off due to profit taking.

Iran Conflict Escalates, Oil Markets Disrupted:

The main story of the day comes from the Middle East, with traders assessing what the conflict in Iran means for the broader macro landscape. Overnight, Iran targeted U.S. assets and caused explosions at major oil terminals, leading to fears of a prolonged conflict that has rattled sentiment. Qatar was forced to shut down liquefied natural gas production at the world's largest export facility following an Iranian drone attack, sending European gas prices surging by more than 50 percent. Israel has temporarily shut down its Karish and Leviathan gas fields as a precautionary measure.

The sudden shift from hopes of progress in negotiations to a full-scale leadership campaign against Iran has caught global markets completely off guard. Unlike narrow raids of the recent past, the current focus on neutralizing core political targets, compounded by ambiguous endgame objectives of the U.S. and Israel, is inherently harder for the market to price. This escalation places the energy market at the center of the macro conversation, moving well beyond just the Strait of Hormuz. What was once considered a remote tail risk has moved uncomfortably close to a base case.

Energy Price Shock Raises Inflation Concerns:

The consequence of an oil shock is higher inflation. Many analysts are already starting to talk about rate hikes in the U.S. and Canada. Rate cuts are increasingly viewed as unrealistic at this point. The market got complacent yesterday thinking this would be a quick conflict. The sober reality is kicking in. The biggest second order effect is higher oil prices and inflation data. A shared Qatari assessment warns that if shipping lanes remain severely disrupted by mid-week, the market reaction for natural gas could become even more significant than Monday's sharp spike.

Behind the scenes, a frantic diplomatic effort is underway to prevent the conflict from spiraling into a wider regional war. The United Arab Emirates and Qatar are privately lobbying allies to help persuade President Donald Trump to find an off-ramp that would keep U.S. military operations against Iran short. Their push for a swift diplomatic resolution aims to pre-empt a prolonged energy price shock and broader regional contagion. However, reflecting the high stakes and fear of proxy retaliation, both Gulf nations are simultaneously rushing to upgrade their air defense capabilities.

USD Safe Haven Dominates Despite CAD Oil Exposure:

There is no alternative to the U.S. dollar in this environment. USD should keep rallying as risks rise and financial conditions tighten. This is the only obvious trade. Even gold is down 5 percent today. The U.S. dollar gained 1 percent yesterday, its highest gain since July 2025. Within the G10 and commodity space, the Canadian dollar is outperforming the Australian and New Zealand dollars but remains softer against the USD. The recent spike in oil prices, paired with equity market volatility, has bolstered the U.S. dollar.

Once the dust settles, analysts will look for trades based on fundamentals. Norway, as a big oil exporter, will benefit from high energy prices. The CAD should benefit as well. Sweden and the Eurozone, as big importers, will struggle. However, for now, the flight to quality is the trade that matters. The length and breadth of the hostilities will dictate how long these premiums last, but the dominant force remains the global scramble for liquidity. Standard economic data reports this week, such as the NFP payrolls, will likely be ignored in favor of regional conflict headlines.

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, the CAD has remained remarkably stable against the USD. The Canadian economy navigated a delicate transition in 2025, posting a 1.7 percent increase in real GDP, its slowest annual growth rate since the pandemic. This cooling trend culminated in a 0.2 percent contraction during Q4, primarily driven by a significant inventory hangover as businesses pulled back on stock levels. 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.

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: 1.3750 (CIBC near-term range top), 1.3779 (pivot point for downtrend established since late November), 1.3856 (bullish reversal target if 1.3779 breaks), 1.3900 (CIBC broader range top)
Support: 1.3661 (24hr low), 1.3650 (CIBC near-term range bottom), 1.3629 (initial support level), 1.3600 (CIBC broader range bottom), 1.3579 (trendline that must break to end corrective rally)
Outlook: The corrective rally since January 30 has pushed the pair toward resistance at 1.3750, with a more significant resistance trendline at 1.3779 above serving as the pivot for the broader downtrend in place since late November. Bearish bias remains intact unless 1.3779 trendline breaks, which would generate a bullish trend reversal and shift focus to 1.3856. CIBC strategists continue to favor their range of 1.3600 to 1.3900. They believe the CAD should outperform on the crosses as it benefits from the rally in oil. They like GBPCAD and EURCAD lower in the near-term.

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 JOLTS job openings data will offer a read on U.S. labor demand, though the data may be overshadowed by geopolitical concerns. 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 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. For USD/CAD, the immediate question is whether geopolitical tensions and rising oil prices will push the pair toward resistance at 1.3750 and 1.3779, or if the Canadian dollar's commodity currency status will limit upside in the pair as oil prices surge.

Other Notes:

• 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. Authorities in Saudi Arabia shut production in the aftermath of an attack on the Ras Tanura oil refinery. The energy market disruption could have lasting implications for global inflation and economic growth.
• EUR/USD Under Pressure: The euro showed selective softness yesterday, driven by the ongoing geopolitical conflict. It continued to weaken against the U.S. and Canadian dollars. Both economies are net crude exporters, meaning that when oil prices surge their terms of trade improve, foreign exchange inflows rise, and their currencies gain support. The euro will remain a focal point for dollar buying given its exposure to higher energy prices. EUR/USD tested and briefly breached the 100-day moving average at 1.1699 yesterday, shedding approximately 0.85 percent.
• GBP Tests Key Support Levels: Sterling remains highly exposed to swings in global risk sentiment, and the latest bout of risk aversion has left the pound vulnerable against most major currencies. The escalation in the Middle East has added a more acute domestic risk, a sharp jump in natural gas prices back to levels last seen after Russia's invasion of Ukraine. For the UK, that raises the threat of another energy-driven hit to growth and public finances. GBP/USD has fallen to its lowest level since December, breaking through a cluster of moving-average supports.
• Swiss National Bank Signals Intervention Risk: EUR/CHF strengthened against the franc yesterday after a firmer tone from the Swiss National Bank on intervention risk, as policymakers weighed the prospect of further franc appreciation driven by the geopolitical crisis. Additional safe-haven demand for the franc would likely suppress inflation further through lower import prices, increasing the risk of inflation slipping below 0 percent. The Bank had not been as explicit as it was yesterday about its willingness to step in.
• Asian Markets Under Pressure: Major Asian economies like South Korea, approaching 4 percent of GDP in net oil imports, and India, over 3 percent, are highly exposed to an oil spike. The South Korean KOSPI hit limit down and triggered sell-side circuit breakers. While the index is still up 34 percent on a year-to-date basis, today's drawdown may be the first sign that the world's hottest equity market is cracking.

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.