Canadian Dollar weakens as safe-haven flows boosts USD; Oil surge caps gains for USD/CAD

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The USD/CAD pair attracts fresh buyers at the start of a new week and reverses a major part of Friday's losses to the 1.3625 area or a nearly two-week low. Spot prices trade around the 1.3665-1.3670 region during the Asian session, up 0.15% for the day.

USD/CAD kicks off the new week on a positive note, though the upside seems limited.
The global flight to safety boosts the safe-haven USD, lending support to spot prices.
Oil prices surge to a multi-month top, underpinning the Loonie and capping the pair.

The US Dollar (USD) shot to a fresh high since January 23 in reaction to the US and Israel strikes against Iran over the weekend, which raises concerns of a broader conflict in the Middle East. This, in turn, triggered a fresh wave of the global risk-aversion trade and forced investors to take refuge in traditional safe-haven assets, including the USD, providing a modest lift to the USD/CAD pair.

Meanwhile, Iran attacked several ships passing through the Strait of Hormuz, fueling concerns about near-term disruptions in oil markets and pushing the black liquid to its highest level since June 2026. This offers some support to the commodity-linked Loonie and might keep a lid on any further appreciation for the USD/CAD pair, warranting some caution for bullish traders.

Canadian Dollar FAQs

What key factors drive the Canadian Dollar?

The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.

How do the decisions of the Bank of Canada impact the Canadian Dollar?

The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.

How does the price of Oil impact the Canadian Dollar?

The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.

How does inflation data impact the value of the Canadian Dollar?

While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.

How does economic data influence the value of the Canadian Dollar?

Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.