Oil Prices And The Canadian Dollar
Higher oil prices were reported as a factor that could support the Canadian Dollar. Canada is the largest exporter of oil to the US, so rising oil prices can support the Loonie. On the charts, USD/CAD held above the rising 20-day EMA and continued higher closes from the 1.36 area. The 14-day RSI moved above 70.00, which points to strong momentum and also suggests the move may be stretched. Support sits at 1.3750 and then 1.3700, with a bearish signal on a daily close below 1.3760. Resistance is near 1.3895, and a break may target the 1.3930 area, described as an over three-month high. We recall last year when tensions involving Iran pushed the USD/CAD exchange rate toward a multi-month high near 1.3930. That spike was driven by a flight to the safety of the US Dollar as geopolitical risks flared up. Today, the situation is calmer, with the pair trading closer to the 1.3550 mark.Interest Rate Differentials Drive The Pair
The primary driver now is less about global conflict and more about interest rate differentials. The US Federal Reserve has maintained a key interest rate of 3.5%, slightly above the Bank of Canada’s 3.25% rate, a spread that continues to attract capital to the US dollar. This fundamental support for the greenback was present last year but was overshadowed by the crisis headlines. While crude oil prices remain strong, with WTI currently trading around $85 a barrel, it isn’t providing the usual boost to the Canadian dollar. Historically, higher oil supports the loonie, but the market seems more focused on yield right now. The powerful influence of the interest rate spread is outweighing the positive effect of oil revenue for Canada. Market volatility is also significantly lower than it was during the peak of the Mideast tensions in 2025. With the VIX, a key measure of market fear, hovering near a low of 14, options pricing is much cheaper. This environment suggests it’s a cost-effective time for traders to buy puts to hedge against a sudden drop or purchase calls to position for a surprise rally. Recent data from the CFTC shows that large speculators have trimmed their net long positions in the US dollar by over 15% in the last quarter. This indicates that the extreme “safe-haven” premium from last year has largely been priced out of the market. Trading is now more influenced by economic data releases than by sudden geopolitical developments. Create your live VT Markets account and start trading now.
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