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After a dramatic fall to three-week lows on Friday, the Canadian dollar tried to recover, but the geopolitical pendulum swung back; Iran's statements about re-closing the Strait of Hormuz and refusing talks pushed oil prices higher again and revived demand for the US dollar as a safe haven. In the first hours of the European session on Monday the USD/CAD pair corrected to the area of 1.3690, and market participants watching the Canadian dollar now focus on key Canadian inflation data (CPI) for March, which will determine Bank of Canada (BoC) policy.
Fundamental background: truce proved fragile
The optimism that prevailed late last week after Iran announced the opening of the Strait evaporated within hours.
Key weekend events:
- Seizure of a US vessel. US naval forces intercepted and seized a cargo ship under the Iranian flag in the Gulf of Oman as part of the blockade; Iran regarded this as a violation of the ceasefire.
- Re-closure of the strait. Iran reimposed military control over the strait, declaring it blocked again for commercial vessels.
- Breakdown of talks. Tehran officially declined to participate in a second round of talks in Islamabad, saying there are "no obvious prospects for productive negotiations while the blockade continues.
US President Donald Trump, for his part, confirmed that the maritime blockade of Iranian ports and coastline will remain in place until the terms of a peace agreement are fully met. This escalation occurred just hours after Iranian Foreign Minister Abbas Araghchi announced the opening of the critical waterway.
Market reaction proved immediate and mixed:
- WTI oil jumped nearly 6%, returning to about $89 a barrel as it retraced most of Friday's losses.
- The US dollar index, USDX, strengthened back above 98.00 amid renewed risk aversion.
That combination created a paradox for USD/CAD: on one hand, higher oil prices traditionally support the Canadian loonie; on the other hand, rising geopolitical tension boosts demand for the US dollar as a haven, pushing the pair higher.
Monetary background: Canadian inflation in spotlight
Today, Statistics Canada will release key consumer price index (CPI) data for March. This is the first official statistic data to fully reflect the energy shock caused by the Middle East crisis.
Forecasts for March:
| Indicator | Forecast | Previous |
| CPI (m/m) | 1.1% | 0.5% |
| CPI (y/y) | 2.5% | 1.8% |
| Core CPI (y/y) | 2.4% | 2.3% |
Rising gasoline prices, driven by the blockade of the strait, will be the main engine of faster inflation; economists even expect a larger jump — up to 2.8% year on year.
Those figures put the Bank of Canada in an extremely difficult position: on one side inflation clearly exceeds the 2% target; on the other side the economy shows signs of stagflation. BoC Governor Tiff Macklem on Friday already outlined the bank's stance: the central bank will watch medium- and long-term inflation expectations closely, rather than react to a short-term energy-driven spike.
Key Macklem takeaways:
- We do not want to act too quickly and raise rates, especially when growth is already weak.
- But we also do not want to be late and allow inflation to become entrenched.
- If businesses and households do not believe inflation will return to 2% in the medium term, that is what would really worry us.
Market expectations shifted sharply. The probability of a BoC rate hike in October now stands at roughly 60%, well below last week's levels; that reflects higher stagflation risks and market doubts that the BoC will tighten amid weak growth.
Brief technical analysis
From a technical standpoint USD/CAD still preserves a long-term bullish trend, trading above the key support at 1.3640 (EMA200 on the weekly chart); however, in the short- and medium-term the pair moved into a bear market zone.
On the daily chart stochastic moves in oversold territory, confirming a strong bearish impulse while already showing initial reversal signals; OsMA drew another histogram bar in the sell zone, but it shows rising character; the relative strength index (RSI) sits around 38–39, indicating continued downward pressure but proximity to oversold conditions that limit further downside. On the 4-hour chart, the pair formed a hammer reversal candlestick pattern, which may foreshadow a corrective bounce. Key resistance remains the 1.3700–1.3735 zone (144-week EMA), and a clear break above it is necessary to signal a shift from the downtrend.
Key events
| Date | Time (GMT) | Event | Anticipated influence |
| Today | 12:30 | Canadian CPI data (March) | Key trigger — will determine BoC rate expectations |
| Today | — | Possible US-Iran talks in Islamabad (uncertain) | Geopolitical risk may affect oil prices and the dollar |
| 22 April | — | Expiration of the two-week truce | Possible extension or new escalation |
| 29 April | — | Bank of Canada meeting | Key rate decision |
Conclusion
USD/CAD stands at the epicenter of three powerful forces: renewed geopolitical escalation in the Strait of Hormuz, an oil price rally and rising stagflation risks in Canada. The pair has become range-bound as the dollar strengthens as a defensive asset while the loonie receives support from high commodity prices. Today's Canadian inflation reading will become the decisive catalyst. If CPI meets expectations (around 2.5% y/y), markets will likely increase bets on a BoC pause and that outcome could weaken the loonie, pushing USD/CAD higher. If inflation disappoints (comes in lower), the BoC will gain room to maintain accommodative policy, which could support the Canadian currency.
Investors should closely monitor diplomatic developments and CPI figures — these two factors will define the pair's trajectory amid a highly contradictory fundamental backdrop.
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