The USDCAD is being pulled sharply in both directions as markets react to the latest headlines surrounding the conflict in Iran. The geopolitical uncertainty is driving rapid swings in oil prices, Treasury yields, and stock markets, all of which are feeding directly into volatility for the US dollar and the Canadian dollar.
Historically, rising oil prices tended to support the Canadian dollar because Canada is a major energy exporter, while falling oil prices often weighed on the currency. However, that relationship has become less reliable over time as the US has also become a major oil producer and exporter. As a result, USDCAD now trades more as a broader risk sentiment and yield-driven pair, with movements in Treasury yields, equities, and geopolitical headlines often having a greater impact than oil alone.
The general rule in the current environment has become fairly straightforward:
Higher yields and higher oil prices tend to push USDCAD higher, while lower yields and lower oil prices tend to send USDCAD lower. With markets reacting rapidly to headlines surrounding the conflict in Iran, the pair has become increasingly volatile and headline-sensitive, leading to sharp two-way price swings.
Today, the USDCAD is trading higher after rebounding from a key technical break yesterday. During yesterday’s session, the pair fell below its 100-hour moving average for the first time since May 6 as yields and oil prices both moved lower. However, in the early Asian-Pacific session, sentiment shifted again. Yields and oil rebounded, helping lift the pair back above the 100-hour moving average at 1.37525 and above the 50% midpoint of the move down from the late-March high at 1.37576. Those two levels are now key short-term barometers for buyers and sellers. As long as the price remains above them, buyers maintain near-term control. If the pair moves back below, sellers would regain momentum, although they would still need to push beneath the 200-hour moving average at 1.3727 and the 100-day moving average at 1.3721 to strengthen the bearish bias further.
On the topside, the next key resistance comes against the highs from yesterday and from April 15 between 1.3778 and 1.3787. A move above that zone would open the door toward the 61.8% retracement targets at 1.38068 and 1.38113, which represent the next major upside objectives for buyers.