Canadian Dollar Snaps Five-Week Losing Streak on Weaker Greenback, Oil Rally

The Canadian dollar strengthened on Friday, putting it on course to break a five-week losing streak, as a softer U.S. dollar and rising oil prices provided dual tailwinds. Investors are also re-evaluating the outlook for U.S. interest rates following recent commentary from a former Federal Reserve official.

According to early market data, the USD/CAD pair traded around 1.4170, or 70.57 U.S. cents, with the U.S. dollar down approximately 0.13% against its Canadian counterpart for the session. The loonie is on track for a weekly gain of about 0.6%, reversing a trend that included a 0.2% decline last week.

U.S. Dollar and Oil Provide Support

The Canadian dollar's recovery was primarily driven by a broad-based weakening of the U.S. dollar. The greenback posted a weekly decline against a basket of major currencies after comments from former Federal Reserve Governor Kevin Warsh reinforced market expectations that the central bank might hold interest rates steady at its October meeting. A weaker U.S. dollar typically supports the loonie by making it cheaper for investors to buy the Canadian currency.

Rising crude oil prices offered another layer of support. As a major energy exporter, Canada's currency is often sensitive to moves in the oil market. Key benchmarks rose this week on supply disruption fears in the Middle East and a sharp decline in U.S. crude inventories.

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• Brent crude gained approximately 1.4% for the week, trading at $106.28 per barrel.
• West Texas Intermediate (WTI) crude surged 6.4% for the week to $97.78 per barrel.

Context and Market Outlook

The weekly advance marks a turnaround for the Canadian dollar, which had recently fallen to an 18-month low. That slide was prompted by weak domestic employment data, which tempered expectations for further interest rate hikes from the Bank of Canada.

While the loonie has gained, investors remain watchful of U.S. inflation signals. The U.S. Producer Price Index (PPI) for September rose 1.3% month-over-month, its largest single-month increase in four and a half years. The data has sparked concern that elevated energy costs could contribute to persistent inflationary pressures, a factor that could influence future Fed policy and the direction of the U.S. dollar.