USD/CAD Extends Grip as Iran Conflict Overrides Oil Support for Loonie

Traders' Opinions

Summary:

USD/CAD extends its winning streak to six sessions, trading near 1.3920 as renewed geopolitical turmoil in the Middle East—including widening conflict involving Iran, Israel, and Houthi forces—bolsters safe-haven demand for the US Dollar.

BUY USDCAD

EXP

PENDING

1.39100

Entry Price

1.41300

1.37400

1.39252 +0.00018 +0.01%

Pips

PENDING

1.37400

Exit Price

1.39100

Entry Price

1.41300

The US Dollar continued its relentless advance against its Canadian counterpart on Monday, pushing USD/CAD higher for the sixth consecutive session as escalating geopolitical tensions in the Middle East reshuffled the global risk landscape. The pair was last seen trading near 1.3920 during the European morning, a level that underscores the greenback’s renewed appeal as the ultimate safe harbor amid mounting uncertainty.

What began as a slow burn of diplomatic brinkmanship over Iran’s nuclear ambitions has now erupted into a multi-front conflict that is testing both military and energy market stability. Over the weekend, Iran-backed Houthi forces in Yemen launched their first direct strikes on Israeli territory—a significant escalation that threatens to pry open a wider regional war. The militant group followed up with explicit warnings that attacks will continue until operations against Iran and its allies cease. In addition to targeting Israel, the Houthis have reaffirmed their intent to disrupt Red Sea shipping lanes and have threatened strikes against critical Saudi Arabian energy infrastructure, reintroducing supply-side risks that markets had largely priced out earlier in the year.

Against this backdrop of spreading instability, the US Dollar is doing what it has done for decades: strengthening when investors seek safety. The greenback’s rebound, which began late last week, regained momentum on Monday as traders digested conflicting signals from Washington regarding Iran policy.

In a striking development, President Donald Trump told the Financial Times that the US could go as far as seizing Iran’s oil assets, specifically pointing to Kharg Island—the country’s primary oil export terminal—which he described as undefended. The remarks injected a new layer of volatility into crude markets already bracing for disruption. Yet in a display of the mixed messaging that has come to characterize this administration’s foreign policy approach, Trump simultaneously noted that indirect talks with Tehran through emissaries were “doing extremely well,” adding that a deal could be reached “fairly quickly.”

That dichotomy—escalatory threats paired with optimism for diplomacy—has left traders parsing every headline for clues, but the dominant market reaction on Monday favored the US Dollar as the cleanest expression of caution.

The Canadian Dollar, meanwhile, has struggled to capitalize on what should be a supportive environment for commodity-linked currencies. West Texas Intermediate (WTI) crude was trading modestly lower around $98.70 per barrel at the time of writing, pausing after three consecutive days of gains. But the broader picture remains one of tight supply and elevated geopolitical risk premium. Given that Canada is the largest foreign supplier of crude to the United States, a sustained rally in oil would typically lift the loonie. Instead, the currency has been overshadowed by the dollar’s safe-haven bid and a growing sense that US economic exceptionalism—however challenged—still offers the most predictable returns in an unpredictable world.

From where I sit, this divergence is telling. The market is effectively signaling that in an environment of widening conflict, currency flows prioritize safety over commodity beta. Even with oil hovering near levels that would normally trigger a re-evaluation of the loonie, USD/CAD has pushed steadily higher. That suggests the pair’s direction is being dictated less by energy fundamentals and more by a structural bid for the dollar—a theme that could intensify as the week progresses.

All eyes now turn to Federal Reserve Chair Jerome Powell, who is scheduled to speak late Monday evening. Traders will be listening for any deviation from the central bank’s recent messaging, particularly around the resilience of the US labor market. That theme will dominate later in the week with the release of key labor market indicators, headlined by the Nonfarm Payrolls (NFP) report, alongside the ISM Purchasing Managers’ Index (PMI). Any signs that the US economy is holding up better than expected—or, conversely, showing cracks under the weight of higher rates—could provide the next catalyst for the dollar’s trajectory.

Technical Analysis

USD/CAD is exhibiting a powerful bullish recovery structure on the daily chart, with price staging a decisive breakout from a prolonged multi-week base. After peaking near the 1.4150 major resistance zone in November 2025, the pair underwent a deep corrective decline that drove price all the way down to the 1.3470–1.3500 support floor by late January 2026 — a drop of approximately 700 pips that fully unwound the preceding bullish leg. What has followed since is a textbook accumulation and recovery pattern, and the current price action near 1.3910 suggests that the bulls have firmly regained control.

The intermediate resistance band between 1.3750 and 1.3800 — which capped multiple recovery attempts throughout February and March 2026 — has now been convincingly broken and reclaimed. Price has closed multiple daily candles above this zone, converting it from resistance into a foundational support base. This structural flip is one of the most technically significant developments on the chart, as it confirms a higher-low, higher-high sequence is now in motion. The 9-period EMA and 21-period SMA, previously acting as overhead resistance during the downtrend, have now crossed bullishly beneath price and are beginning to slope upward in parallel — a clear sign that momentum has rotated decisively in favor of the USD.

The immediate challenge for bulls lies at the 1.3930–1.3950 zone, marked by the dotted horizontal level visible on the chart, which represents a prior consolidation and short-term pivot area from early 2026. Price is currently probing this level, and a clean daily close above 1.3950 on sustained volume would be the technical trigger for a broader continuation move. Failing to hold above this zone in the near term would likely invite a pullback toward the 1.3750–1.3800 re-test area, which now serves as the first critical layer of dynamic support on any corrective dip.

Should the 1.3950 resistance give way convincingly, bullish attention shifts squarely toward the 1.4100–1.4150 major resistance ceiling — the multi-month high that capped the pair in November 2025. This zone represents the definitive test for the recovery trend and is the primary upside target on the daily timeframe. A sustained break and close above 1.4150 would mark a full reclamation of the prior range and open the door toward uncharted territory above 1.4200.

On the downside, a failure to hold above 1.3750 would represent a notable deterioration in the recovery structure and would bring the 1.3500 psychological support floor back into focus. A break below 1.3500 would negate the bullish thesis entirely and signal a resumption of the broader downtrend.

The moving average configuration supports the bullish outlook. Both the 9-period EMA and 21-period SMA are tracking higher beneath price after their recent golden crossover, reinforcing a trend-following buy signal on the daily timeframe. The fact that price has broken above both averages with conviction — rather than merely spiking through — adds credibility to the directional shift.

TRADE RECOMMENDATION

BUY USD/CAD

ENTRY PRICE: 1.3910

STOP LOSS: 1.3740

TAKE PROFIT: 1.4130

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USD/CAD Extends Grip as Iran Conflict Overrides Oil Support for Loonie

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