Canadian Dollar Recovers from Two-Week Low as Oil Tops $90, BoC Meeting in Focus

The Canadian dollar rebounded from a more than two-week low against the U.S. dollar on Monday, buoyed by a significant rally in oil prices. The currency's move comes as traders position themselves ahead of a key interest rate decision from the Bank of Canada (BoC) later this week.

Oil Surge Lifts the Loonie

The Canadian currency, often called the loonie, strengthened to around C$1.389 per U.S. dollar, or 72.0 U.S. cents. This marked a recovery from its weakest level since mid-August, when it touched C$1.3911 earlier in the session, according to Investing.com data.

The primary catalyst for the recovery was a sharp increase in the price of crude oil, a key Canadian export. Brent crude, the global benchmark, climbed more than 3% to trade above $90 a barrel. The source attributed the oil price spike to renewed military tensions between the U.S. and Iran near the Strait of Hormuz, which stoked concerns over global supply disruptions.

Headwinds and Central Bank Policy

Despite the gains, the loonie's advance was capped by broader strength in the U.S. dollar. Hawkish sentiment from the U.S. Federal Reserve, with officials suggesting further interest rate hikes may be necessary to control inflation, has supported the greenback and U.S. Treasury yields.

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The Canadian dollar is also recovering from a difficult prior week, during which it fell about 1%. That decline occurred after the United States imposed new 50% tariffs on $20 billion of Canadian imports, overshadowing data that showed Canada’s economy grew at a robust 3.3% annualized rate in the second quarter.

Market Focus Shifts to BoC Decision

Looking ahead, market participants are focused on the Bank of Canada's upcoming policy meeting. The central bank's decision, along with forthcoming U.S. jobs and inflation data, will be critical in shaping the relative monetary policy paths of Canada and the United States.

These events will offer investors further clues on the interest rate differential between the two countries, a key driver for the USD/CAD exchange rate.