Canadian Dollar Weakens as Plunging Oil Prices Offset Strong Trade Data

The Canadian dollar lost ground against the U.S. dollar on Tuesday, as a significant decline in oil prices weighed on the commodity-linked currency. The loonie traded 0.2% lower at 1.4070 per U.S. dollar, or 71.07 U.S. cents, after touching its weakest intraday level in nearly a week.

Oil Price Pressure

The primary driver for the Canadian dollar's weakness was a steep fall in the price of crude oil, one of Canada's most important exports. Oil prices tumbled 5.7% to $75.80 a barrel on Tuesday.

The drop in crude was reportedly linked to comments from Qatari and U.S. officials that spurred hopes for a diplomatic resolution to geopolitical tensions involving Iran. Progress on this front could potentially improve the flow of oil through the critical Strait of Hormuz, easing supply concerns and pushing prices lower.

Strong Domestic Data Overlooked

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The loonie's decline came despite the release of otherwise positive Canadian economic data. Canada recorded its fourth consecutive monthly trade surplus in June, which widened to a four-year high of C$3.86 billion ($2.75 billion). This figure surpassed analysts' forecasts of a C$3 billion surplus.

"June’s data confirm that a further rebound in export volumes from the lows seen in 2025 appears to have been a large driver of the strength in GDP signalled for Q2," said Andrew Grantham, a senior economist at CIBC Capital Markets, in a note. However, he cautioned that "with the threat of new tariffs looming, this surge in exports could easily slow or stall ahead."

Other data showed Canada's manufacturing sector expanded in July at its fastest pace in more than four years. This strength was primarily driven by domestic activity, while weak international demand raised questions about its sustainability. Preliminary figures also pointed to Canada's economy growing at a 3.4% annualized rate in the second quarter.