Canadian Dollar bulls appear cautious, as risks around Hormuz support the US dollar and counterbalance the uplift from stronger oil prices.

• USD/CAD finds it difficult to build on the gains recorded over the past two days amid conflicting signals.
• Tensions around Hormuz lend support to the safe-haven US dollar, while higher oil prices continue to bolster the Canadian dollar.
• At the same time, differing policy outlooks between the Fed and the BoC are also limiting further upside in the pair.

USD/CAD eases slightly from a three-day high reached during Thursday’s Asian session but struggles to gain clear direction amid mixed fundamentals. While a temporary extension of the US-Iran ceasefire offers some relief, tensions surrounding the Strait of Hormuz continue to support the safe-haven US dollar. At the same time, higher crude oil prices lend strength to the Canadian dollar, limiting further upside in the pair.

US President Donald Trump announced on Tuesday an indefinite extension of the ceasefire with Iran just hours before its expiry, while reaffirming that the US Navy blockade of Iranian ports would remain in place. Iran, however, has made the lifting of the blockade a strict condition for resuming negotiations. Adding to tensions, Iran’s Revolutionary Guard reported firing on three vessels and seizing two in the Strait of Hormuz. These developments keep geopolitical risks elevated, helping the US dollar hold onto recent gains and offering support to USD/CAD.

Despite this, the dollar lacks strong bullish momentum as expectations for a hawkish Federal Reserve stance continue to fade, with markets increasingly pricing in a rate cut by year-end. In contrast, expectations are building for a possible rate hike by the Bank of Canada in April. Meanwhile, ongoing US-Iran tensions are pushing oil prices higher for a third consecutive day, benefiting the commodity-linked Canadian dollar and capping USD/CAD gains. This backdrop suggests caution, with traders likely waiting for stronger confirmation before calling a near-term bottom.

Looking ahead, attention turns to upcoming US data, including weekly jobless claims and flash PMI readings due later in the North American session. These releases could influence US dollar demand, while oil price movements and geopolitical developments remain key drivers, likely sustaining volatility and shaping trading opportunities for the pair.