The Canadian Dollar (CAD) is holding its ground against a weaker US Dollar (USD). Its performance during the recent Israel/Iran conflicts has been average compared to other major currencies. Even with rising oil prices, the CAD has not seen significant gains and has been outpaced by the Norwegian Krone (NOK) and Mexican Peso (MXN). The relationship between CAD and West Texas Intermediate (WTI) crude oil is currently low, showing a negative 1-month correlation of -17% and a 10-day correlation of -38%.

Impact of Geopolitical Events on CAD

Disruptions in Iranian oil supply or shipping could lead to higher crude prices, which might benefit the CAD. Right now, the strength of CAD mainly comes from the weakening USD. Progress made at the G7 meeting could also provide additional support. Currently, the CAD is trading close to its fair value estimate of 1.3588. The USD continues its downward trend, with resistance levels around 1.3650/1.3660 and 1.3730, suggesting potential further declines towards 1.34. Investors should be mindful of risks and conduct thorough research before acting. The USD is facing pressure, and ongoing losses could further impact the CAD. Discussions around geopolitical tensions, interest rate decisions, and China’s economic outlook will keep global markets active and influence currency trends. The Canadian Dollar has remained steady, mostly due to the general weakness of the US Dollar. Since the escalation of tensions between Israel and Iran, the CAD has been relatively balanced among major currencies—not too strong or too weak. In contrast, currencies like NOK and MXN have performed better, indicating that oil prices have not positively impacted the CAD as expected. Despite oil prices rising, the Canadian Dollar’s response has been muted. Recent data shows a slightly negative correlation of -17% between CAD and WTI crude over the last month, and a -38% correlation over the last 10 days. This suggests that oil, which typically supports the CAD, hasn’t been providing the usual lift. However, should tensions in the Middle East disrupt oil supplies, crude prices might increase significantly. In such a scenario, it would be important to monitor if the CAD and oil prices reconnect. The effect on the CAD would depend on not just the price change but also the Bank of Canada’s response and shifts in market expectations around interest rates.

Factors Influencing CAD Movement

Currently, the CAD is trading close to what many models suggest is fair value, with 1.3588 serving as a benchmark. The continued downtrend of the USD suggests potential for more strength in CAD, provided there are no sudden reversals in US economic data. There are resistance points around 1.3650–1.3660 and again at 1.3730. If pressure on the USD persists, a drop to around 1.34 is possible. In the upcoming weeks, it will be crucial to observe not just interest rates or oil prices, but how they interact with external risks—especially concerning China’s economy, outcomes from the G7, and any new central bank announcements. These elements will shape capital flows and consequently influence volatility and market trends. Traders focused on CAD should pay attention to daily trading volumes, positioning data, and expectations for interest rates. We’ve noticed that currencies are reacting more swiftly to changes in forward-looking guidance, and CAD is no exception. If global risk sentiment shifts, movements could occur rapidly. Keeping an eye on the USD downtrend is critical. If it continues to decline, more strength for CAD could follow. But be watchful for changes. A shift in geopolitical dynamics or unanticipated strength in US economic data might quickly bolster the USD, especially if bond yields rise above current expectations. In this fast-moving market, simply reacting to headlines or one-off price changes won’t suffice. Maintain a close watch on movements across different assets—particularly commodities and yields—and avoid relying too heavily on historical correlations that may not be relevant at this time. Create your live VT Markets account and start trading now.

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