The Canadian Dollar (CAD) is currently the weakest currency in the G10. This decline is largely due to concerns about increased Venezuelan oil supply and uncertainties around USMCA trade negotiations. Francesco Pesole from ING notes that these factors have led to the CAD struggling since the weekend. An increase in Venezuelan oil supply may hurt Canadian heavy, high-sulphur crude, which used to be more valuable during Venezuela’s earlier shortages. On Monday, the gap between Western Canadian Select and WTI crude widened, showing caution in the commodities market.

The Weakness of the CAD

The CAD is also vulnerable due to possible risks from USMCA negotiations and potential interest rate cuts by the Bank of Canada expected in 2026. A short-term fair value model suggests that the CAD should be trading above 1.380. Markets may not be accurately reflecting these economic risks, hinting that the USD/CAD could move toward 1.390. Analysts prefer currencies like the NZD, SEK, and NOK over the CAD, considering them lower risk with better market conditions. So far this year, the Canadian dollar is the weakest major currency due to worries over new oil supply from Venezuela and upcoming trade negotiations with the U.S. These issues are putting a lot of pressure on the loonie. Derivative traders should brace for ongoing weakness in the coming weeks. Venezuelan oil production surged past 900,000 barrels per day in December 2025, directly competing with Canadian heavy crude. Last year’s geopolitical shifts widened the price gap between Western Canadian Select and WTI crude, which continues to be a key indicator of pressure on Canada’s energy sector.

Political and Economic Risks

Besides oil, there are also political risks being overlooked. The formal review of the USMCA trade deal is set for mid-2026. With Canada’s economic growth in the last quarter of 2025 coming in below expectations, the Bank of Canada may need to consider interest rate cuts this year. A surprise rate cut during the 2015 oil price collapse showed that the Bank is willing to act decisively. For traders using derivatives, this suggests a bearish outlook for the Canadian dollar against the U.S. dollar. Buying USD/CAD call options near the 1.3850 or 1.3900 levels could be a wise strategy, allowing traders to benefit from potential gains while limiting risk. Given the specific challenges Canada faces, we currently prefer currencies like the New Zealand dollar and the Norwegian krone. These options provide exposure to a positive global outlook without the unique political and commodity issues that are currently dragging down the loonie. Until trade and oil conditions improve, the CAD is likely to continue underperforming. Create your live VT Markets account and start trading now.

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