Canadian Dollar Strengthens as Oil Prices Surge on Supply Concerns

The Canadian dollar gained ground against the U.S. dollar on Thursday, standing out as the only Group of 10 currency to appreciate against the greenback. The move was primarily driven by a surge in oil prices, a key Canadian export, and supported by robust domestic economic data.

The currency, often referred to as the loonie, traded 0.1% higher at 1.4075 per U.S. dollar, or 71.05 U.S. cents, after moving within a range of 1.4058 to 1.4099 during the session.

Oil Prices Jump on Geopolitical Tensions

Crude oil prices climbed sharply after Yemen’s Houthi group reported attacks on two Saudi oil tankers in the Red Sea, fueling concerns about potential disruptions to global energy supplies. According to the report, oil prices increased by 6.2% to $92.40 a barrel.

As Canada is a major crude oil producer, higher oil prices are typically bullish for the Canadian dollar. However, the price spike also lifted the U.S. dollar against a basket of other major currencies amid heightened inflation concerns and expectations of a Federal Reserve response.

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Domestic Data Shows Strength

Adding to the loonie's strength, new data showed Canadian retail sales increased by 1% in May, meeting market expectations. The gains were widespread, led by sales at gasoline stations and fuel vendors.

A preliminary estimate for June indicated a further sales increase of 0.4%. Shelly Kaushik, a senior economist at BMO Capital Markets, noted the solid performance, stating, "Beyond the gas price increase, retail sales were solid in May, and a decent flash for June adds to the encouraging news." Kaushik added that the economy appeared to be "building momentum in Q2."