USD/CAD slips as surging crude oil lifts the Canadian Dollar
- Canadian Dollar firms on Iran-driven oil spike despite weak Q4 GDP and a cautious BoC.
- The BoC held rates at 2.25% in January, with the next decision on March 18; most analysts expect another hold as rising energy costs complicate the inflation outlook.
- WTI crude surged more than 8% on Monday after the closure of the Strait of Hormuz, lifting the commodity-linked Loonie despite a 0.6% contraction in Canada's Q4 GDP.
USD/CAD slipped about 0.1% on Tuesday, settling near 1.3660 in a thin daily change after Monday's broader US Dollar bid failed to carry through. The pair has been trending lower since the January highs close to 1.3930, carving out a series of lower highs and lower lows. Tuesday's candle printed a narrow body, pointing to indecision around the 1.3660 area.
A surge in Crude Oil prices is the dominant short-term driver for the Canadian Dollar. US and Israeli strikes on Iran over the weekend prompted Iran's Revolutionary Guard to declare the Strait of Hormuz closed, halting tanker traffic through a chokepoint that carries roughly 20% of global oil consumption. West Texas Intermediate (WTI) Crude jumped more than 8% on Monday, with Brent trading around $79 per barrel. As a major oil exporter, Canada benefits directly from higher energy prices, and the spike gave the Loonie a lift despite a weak domestic backdrop.
The Bank of Canada (BoC) held rates at 2.25% in January, continuing the pause that began in December after nine consecutive cuts brought the policy rate down from 5%. Fourth-quarter Gross Domestic Product (GDP) confirmed a 0.6% contraction, the weakest since 2020, though February's manufacturing Purchasing Managers Index (PMI) hit a 13-month high of 51. The next BoC decision falls on March 18, with markets broadly expecting another hold.
USD/CAD daily chart
Technical Analysis
In the daily chart, USD/CAD trades at 1.3661. The near-term bias is mildly bearish as spot holds below the declining 50-day exponential moving average near 1.37 and remains well under the 200-day average around 1.38, keeping the broader downswing intact. Price has been unable to sustain rebounds toward the 50-day average in recent sessions, signalling persistent selling interest on approaches to that dynamic cap. The Stochastic oscillator has turned lower from overbought territory above 80 and now slips toward the 70 region, indicating fading upside momentum and increasing risk of a deeper pullback within the recent range.
Initial resistance emerges at the 50-day EMA around 1.3715, with a daily close above this level needed to open a recovery toward the 1.3790–1.3800 area, where the 200-day EMA reinforces a stronger barrier. On the downside, immediate support stands at the recent reaction low near 1.3640, followed by the mid-November trough around 1.3558. A break below 1.3558 would confirm renewed bearish pressure and expose the 1.3490 zone as the next target, while only a sustained move above 1.3800 would challenge the prevailing downside bias.
In the weekly chart, USD/CAD trades at 1.3661. The near-term bias is neutral with a slight downside tilt as the pair eases from the 1.40 area and loses altitude from recent highs while still holding well above the rising 200-week EMA near 1.36. Price action shows a sequence of lower weekly highs from the 1.40–1.41 region, indicating fading upside momentum. The stochastic oscillator remains in mid-range after rolling lower from overbought territory, signaling waning bullish pressure rather than an outright bearish reversal.
Initial resistance emerges at 1.3730, where recent weekly supply aligns with the lower bound of the prior 1.39–1.40 consolidation, followed by a more decisive barrier at 1.3915 and then 1.4000. On the downside, immediate support is at 1.3615, just above the 200-week EMA, with a break exposing the next cushion at 1.3550 and then 1.3450. A weekly close above 1.3730 would revive bullish momentum toward 1.3915, while sustained trading below 1.3615 would strengthen the corrective tone and open a deeper pullback toward the mid-1.34s.
(The technical analysis of this story was written with the help of an AI tool.)
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
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