The US Dollar rose against the Canadian Dollar, increasing 0.5% today and up 0.8% since last week’s lows. This change was influenced by worries about new US tariffs, following President Trump’s announcement about tariff letters. US Treasury Secretary Scot Bessent hinted at a possible new deadline for tariffs on August 1, allowing some countries time to negotiate. However, China, the UK, and Vietnam already have deals from April. The Canadian Dollar struggled as Oil prices fell, with OPEC+ approving a larger increase in Crude supply.

Impact Of Oil Prices On The Canadian Dollar

West Texas Intermediate (WTI) prices dipped below $65.00 but later rose back above $66.00, affecting the Canadian Dollar since Oil is Canada’s main export. The currency is influenced by the Bank of Canada’s interest rates, Oil prices, and economic indicators like GDP and employment stats. The value of the Canadian Dollar is also affected by inflation and the US economy’s strength. The Bank of Canada targets inflation between 1-3% and adjusts interest rates based on this, impacting the CAD. Typically, higher interest rates and Oil prices strengthen the Canadian Dollar. Recently, the US Dollar gained momentum against the Canadian Dollar, climbing 0.5% during the day and nearly a full percentage point above last week’s low. This rise has been mostly due to new worries about trade and tariffs. Trump’s announcement of tariff measures created uncertainty, leading to a stronger demand for the Dollar. Bessent pointed to a potential new enforcement date of August 1, which might give negotiators a small window to secure new agreements. However, countries like China, the UK, and Vietnam have already established their positions. Meanwhile, the Loonie faces challenges.

The Relationship Between Oil Prices And The Canadian Dollar

Oil dynamics have added more downward pressure. OPEC+ has approved an increase in supply, causing fluctuations in commodity prices. WTI fell below $65 before rising above $66 again. Since Canada relies heavily on oil exports, any drop in crude prices tends to weaken the CAD. Traders have adjusted short-term positions and recalibrated expectations around volatility. The connection between Canada’s currency and global oil is strong, and in the current market, energy price fluctuations can have a big impact. Traders are also adjusting rate expectations based on the Bank of Canada’s response to inflation. The central bank is managing persistent inflation that exceeds its 1–3% target range. If inflation doesn’t slow, policymakers may need to maintain or raise interest rates. Typically, tighter policies strengthen the currency, provided no external factors like oil prices interfere. On another front, the strength of the US economy and job data has increased demand for Dollars. Healthy growth and employment make it hard to predict Federal Reserve policy. This strength complicates the outlook for a CAD recovery, especially when commodity prices remain low and Canadian data lacks upward movement. In the coming week, we will keep an eye on volatility across different assets. Rate differences favor the Dollar in most pairs, especially with Canadian markets showing weakness amid uncertain inflation. Traders should monitor how risk skews shift with energy data and central bank hints. Flows appear cautious, and short-term positions may take precedence given the fast-changing narrative. Currently, volatility premiums on CAD-linked contracts seem undervalued considering the potential for fluctuations in oil prices and tariff news. Timing entries during key economic releases will likely provide better opportunities than chasing trades based on headlines. We’re also watching for any mispricing in rate futures that could influence future policy paths. In these situations, waiting for the right moment is usually more effective than rushing into trades triggered by headlines. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now