Canadian Dollar Strengthens as Oil Prices Spike on Mideast Tensions

The Canadian dollar gained ground against the U.S. dollar on Wednesday, supported by a sharp rally in crude oil prices and growing expectations for a potential interest rate hike by the Bank of Canada this year.

Key Market Movements

The loonie, as the Canadian currency is known, traded 0.2% higher at 1.4170 per U.S. dollar, which translates to 70.57 U.S. cents, according to Investing.com data. The currency pair moved within a daily range of 1.4156 to 1.4210.

The primary catalyst was a surge in the price of oil, one of Canada's most significant exports. Crude prices climbed 5.2% to settle at $74.10 a barrel. This increase followed comments from U.S. President Donald Trump indicating an interim agreement with Iran was "over" and that new military strikes were likely, stoking fears of supply disruptions.

Shifting Rate Expectations

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Beyond oil's influence, monetary policy expectations also provided a tailwind for the Canadian dollar. Data from the swap market showed that investors are now pricing in approximately a 60% chance of a Bank of Canada interest rate increase in 2026, up from 40% the previous day. Higher interest rates typically attract foreign investment, increasing demand for a nation's currency.

In a note to clients, Scotiabank strategists Shaun Osborne and Eric Theoret commented on the currency's resilience, stating, "The CAD has performed relatively well through the overnight volatility." They also noted that "Negative CAD sentiment is moderating but spot remains quite elevated."

Broader Market Impact

The spike in oil prices had a cooling effect on broader financial markets, with global stock indexes declining. Investors grew concerned that higher energy costs could fuel inflation, potentially forcing central banks to maintain tighter monetary policies, which can act as a headwind for economic growth.