Canadian Dollar Strengthens as Oil Prices Spike on U.S.-Iran Tensions

The Canadian dollar strengthened against the U.S. dollar on Wednesday, buoyed by a sharp increase in crude oil prices amid escalating U.S.-Iran tensions and growing expectations for a Bank of Canada interest rate hike.

The loonie traded 0.2% higher at 1.4170 per U.S. dollar, or 70.57 U.S. cents, after moving in a range of 1.4156 to 1.4210, according to a report from Investing.com.

Oil Surge Lifts Loonie

The primary driver for the currency's advance was a significant jump in the price of crude oil, a key Canadian export. Oil prices climbed 5.2% to $74.10 a barrel after U.S. President Donald Trump said an interim agreement with Iran was "over" and that new U.S. strikes were likely.

The increase in energy prices provided direct support to the commodity-linked Canadian dollar. The broader market reaction was more cautious, as rising oil prices raised concerns about the global inflation outlook and the potential for tighter monetary policy, causing stock markets to decline.

Ad

Shifting Rate Hike Expectations

Investor sentiment also shifted toward a more hawkish outlook for Canadian monetary policy. According to the source, data from the swap market showed that investors now see a 60% chance the Bank of Canada will raise interest rates this year, a notable increase from the 40% probability seen on Tuesday.

In a note to clients, Scotiabank strategists Shaun Osborne and Eric Theoret observed the currency's resilience. "The CAD has performed relatively well through the overnight volatility," they wrote, adding that "negative CAD sentiment is moderating but spot remains quite elevated."