USD/CAD Price Forecast: Bulls remain on the sidelines as Oil prices rally on Hormuz risks

• USD/CAD struggles to capitalize on its modest intraday uptick amid mixed fundamental cues.
• Rallying Oil prices underpin the Loonie, while fresh US-Iran tensions lend support to the USD.
• Inflation fears push US bond yields higher and favor the USD bulls, limiting losses for the pair.

The USD/CAD pair attracts some dip-buyers on Monday, though it struggles to capitalize on the move or find acceptance above the 1.3700 mark amid mixed fundamental cues. Renewed US-Iran tensions over the Strait of Hormuz temper investors' appetite for riskier assets, offering some support to the safe-haven US Dollar (USD) and the currency pair. That said, a sharp intraday rally in Crude Oil prices underpins the commodity-linked Loonie and caps the upside for spot prices.

The US Navy intercepted and seized an Iranian-flagged cargo ship in the Gulf of Oman as part of its blockade. Iran viewed this as a breach of the ceasefire agreement and once again closed the strategic waterway after briefly opening it following a 10-day truce between Israel and the Lebanese group Hezbollah on Friday. Furthermore, US President Donald Trump said that the naval blockade of Iranian ports would continue until a peace deal was agreed between the two countries.

Iranian state media reported that officials will not participate while the US blockade remains in place. The standoff dampens hopes for an agreement before the current ceasefire ends on April 22, triggering a fresh wave of the global risk-aversion trade and benefiting the USD's reserve currency status. Adding to this, reviving inflationary concerns push US Treasury bond yields higher, which turns out to be another factor acting as a tailwind for the buck and the USD/CAD pair.

The instability around the world's most critical maritime chokepoint for energy assists Crude Oil prices in recovering a major part of Friday's losses to the lowest level since March 11. Furthermore, diminishing odds for a rate hike by the US Federal Reserve (Fed) hold back the USD bulls from placing aggressive bets and contribute to keeping a lid on the USD/CAD pair. In fact, the CME Group's FedWatch Tool indicates that there is a roughly 40% chance of a Fed rate cut by the year-end.

The mixed fundamental backdrop makes it prudent to wait for strong follow-through buying before confirming that spot prices have bottomed out and that the recent downfall witnessed over the past two weeks or so has run its course. Traders now look to the latest Canadian consumer inflation figures for more cues about the Bank of Canada's (BoC) outlook. This, along with developments surrounding the US-Iran saga, might provide short-term trading impetus to the USD/CAD pair.

USD/CAD 4-hour chart

Technical Analysis:

Spot prices on Friday showed some resilience below the 61.8% Fibonacci retracement level of the January-March upswing. That said, the  recent breakdown below a confluence comprising the 38.2% Fibo. retracement level and the 200-period Exponential Moving Average (EMA), and the lack of strong follow-through buying warrants caution for bulls.

Meanwhile, the Moving Average Convergence Divergence (MACD) histogram has turned marginally positive, hinting at waning downside momentum. The Relative Strength Index (RSI) near 35 still reflects weak demand, suggesting rebounds could struggle while the price remains capped under these overhead levels.

On the upside, initial resistance is located at the 50.0% retracement at 1.3726, ahead of the 1.3775-1.3785 confluence and the 1.3800 mark, with further upside hurdle emerging at the 23.6% retracement near 1.3853. On the downside, immediate support is seen at the 61.8% Fibo. level at 1.3669, with deeper pullbacks exposing the 78.6% retracement at 1.3588 and the prior swing low area around 1.3485 if bearish pressure re-intensifies.

(The technical analysis of this story was written with the help of an AI tool.)