Investing in USDCAD as Middle East ceasefire holds

USDCAD is currently stuck in the middle of its trading range—neither here nor there, hovering between 1.36500 and 1.41000. 

The two-week ceasefire announced by the US and Iran in the Middle East—provided that the Strait of Hormuz reopens immediately and safely—is set to shake things up for the pair. The main engine behind this move is a sharp collapse in the geopolitical premium baked into oil and other energy prices. As soon as the news broke that all parties had signed off on the deal, Brent and WTI crude got hammered, shedding more than 15% to land at $95 and $90 per barrel, respectively. For Canada—a heavyweight net exporter of energy—this is a real blow. When fuel craters, the loonie usually follows it down the drain. 

Sure, the ceasefire is also calming broader risk fears, which dulls a bit of shine off the American dollar as a safe haven in a storm. But for USDCAD, this factor takes a backseat. The real driver here is the historically tight negative dance between the pair and oil quotes. And right now, fuel is leading—easily outweighing any potential weakening of the greenback.

If that weren't enough, fundamentals are lining up on the same side. The latest US labor market report came in hot, and the interest rate gap between the Federal Reserve and the Bank of Canada remains stubbornly wide. Both factors are giving the American currency a sturdy backbone. Meanwhile, cheaper fuel is kicking the loonie while it is already down.

The final recommendation: 

— Buy ​​USDCAD at the current price, targeting 1.41000 within the next couple of months.

— To keep your risk in check, place a Stop Loss order 1% below your entry level—just in case the pair moves in the wrong direction.