- The Canadian dollar has substantial value against the US dollar, primarily due to interest rate differentials and safe haven consideration
- USD/CAD has also stayed up despite rising oil prices due to US being an oil producer
- The Bank of Canada will release its monetary policy report on April 29, and that could shift the USD/CAD momentum
Over the past three weeks, the US Dollar has steadily gained ground against the Canadian Dollar, with the USD/CAD pair marking six consecutive sessions of gains. This has driven the exchange rate close to year-to-date peaks near 1.3940. This development is particularly noteworthy because it appears counterintuitive. The Canadian Dollar is commonly recognized as a petrocurrency, which typically appreciates when oil prices rise. So what’s happening?
Why the Dollar Is Winning Despite Oil Price Spike
The key driver behind the current USD strength against the CAD is centered on interest rate dynamics. The US, as a net energy exporter, experiences less adverse impact from higher oil prices, while the Dollar benefits from safe-haven inflows amid ongoing geopolitical tensions. The US-Israeli military operation targeting Iran in late February caused a spike in oil and gas prices, further stoking inflation concerns within the United States.
This environment has led market participants to adjust expectations away from additional Federal Reserve rate cuts, and instead to anticipate a potential rate increase later this year. Rising US Treasury yields, combined with the Dollar’s role as a global reserve currency, continue to weigh on the Canadian Dollar. In contrast, Canada faces a different monetary landscape.
The Bank of Canada opted to maintain its policy rate at 2.25% in the March 18 meeting. The central bank highlighted downside risks to economic growth, while acknowledging inflationary pressure driven by higher energy costs. Governor Tiff Macklem clearly indicated that further rate hikes aimed at curbing inflation could exacerbate economic weakness.
What Does Q2 2026 Look Like for USD/CAD?
RBC Capital Markets, in its Currency Report Card, is keeping its H1 USD/CAD forecast around 1.3700. Market attention will focus on the Bank of Canada’s April 29 policy announcement and Monetary Policy Report. The challenge for the BoC is balancing concerns about slowing growth against inflation fueled by energy prices. Analysts will pay close attention to the tone and guidance provided by Governor Macklem for indications of future policy direction.
USD/CAD Forecast
The RSI on USD/CAD is currently signaling overbought conditions at 74. The immediate resistance sits at 1.3943, at the upper Bollinger Band level. A clean break above this could could open the doors toward 1.3980. On any retracement, the first line of defense is 1.3860, followed by 1.3834.
USD/CAD daily chart with key levels of support and resistance on March 31, 2026. Created on TradingView
The safe-haven demand for the US Dollar amid Middle East tensions is currently stronger than the commodity demand for the CAD. Additionally, the 1.5% interest rate advantage in the US makes the USD more attractive to investors.
The trend is likely to last as long as there is geopolitical uncertainty, but surprises in Canadian data could change the trend; the US’s unique appeal as a safe haven could also keep the trend going.
The Fed has signaled a “higher-for-longer” approach, holding rates at 3.75%. This cautious stance, driven by energy-led inflation risks, continues to provide a fundamental floor for the US Dollar’s strength against its peers.