Canadian Dollar Strengthens as Oil Prices Spike on Mideast Tensions

The Canadian dollar advanced against the U.S. dollar on Wednesday, bolstered by a sharp rally in crude oil prices, a key Canadian export, following an escalation in U.S.-Iran tensions.

Loonie Rises with Crude

The Canadian dollar, often referred to as the loonie, traded 0.2% higher at 1.4170 per U.S. dollar, or 70.57 U.S. cents, according to a report from Investing.com. The currency pair fluctuated within a range of 1.4156 to 1.4210 during the session.

The primary driver for the loonie's strength was a significant jump in oil prices. Crude oil climbed 5.2% to $74.10 a barrel after U.S. President Donald Trump indicated an interim agreement with Iran was "over," sparking concerns about new military action and potential supply disruptions.

Ad

Rate Hike Expectations Grow

Beyond the surge in energy markets, the Canadian dollar also found support from shifting monetary policy expectations. Data from the swap market now indicates investors are pricing in a roughly 60% probability of an interest rate increase by the Bank of Canada this year, a notable jump from 40% on Tuesday. Higher interest rates typically increase the appeal of a country's currency.

Strategists Shaun Osborne and Eric Theoret at Scotiabank noted the currency's resilience, stating in a note that "The CAD has performed relatively well through the overnight volatility." The broader market sentiment saw global stock markets decline as the spike in oil raised concerns about inflation and the potential for tighter monetary policy from central banks.