Impact of Oil Prices on the CAD

Optimism regarding a US-China trade agreement could prevent further losses for the USD in the short term. Crude Oil price increases support the CAD, as Canada, a major US oil supplier, benefits from high oil prices. Interest rates set by the Bank of Canada are crucial for the Canadian Dollar’s value. Higher interest rates tend to support the CAD. Oil prices significantly impact the CAD due to Canada’s heavy oil export reliance. Rising oil prices generally lead to a stronger Canadian Dollar. Economic data, such as GDP and employment figures, influence the CAD’s value. A robust economy can lead to a stronger CAD by attracting investment and potentially prompting higher interest rates. The dip to 1.3925 during the early Asian session reflects a clear response to the softer inflation print in the US. April’s Consumer Price Index rising at 2.3% on an annual basis—slightly under the previous month’s 2.4%—signalled reduced pressure for the Federal Reserve to act aggressively on monetary policy. The 0.2% gain in both headline and core CPI on a monthly basis, though steady, wasn’t strong enough to shift expectations substantially towards a rate hike.

The Role of Bank of Canada and Economic Data

We’re likely to see traders continuing to reduce exposure to the greenback in the near term, especially in pairs where the opposing currency finds support through strong fundamentals. That has appeared to be the case here. With Canada also gaining backing through firm crude oil gains, this has created a scenario where pressure on the US Dollar is magnified in this cross. Policymakers at the Bank of Canada, having maintained relatively firm rhetoric on rates, could now benefit from having conditions that support the currency through mechanisms beyond rate differentials. Energy prices are particularly influential in this regard. As one of the leading exporters of oil to the United States, any movement in crude tends to funnel directly into expectations around Canada’s trade income and broader economic strength. Especially now, as West Texas Intermediate crude continues to test upward resistance above $80 per barrel, we anticipate further resilience in the CAD should those levels hold. This kind of trend, even within a sideways market, can provide tactical opportunities for positioning if we stay attuned to hourly and daily chart patterns over reaction-based trading. With regards to scheduled releases, attention pivots to Canadian GDP and labour figures over the coming fortnight. Strong domestic data would support the recent CAD momentum, especially if oil prices remain buoyant. Any disappointment, however, would shift focus back to monetary policy signals, particularly if inflation data elsewhere adds to the view that rate divergence is narrowing. It becomes less a question of whether interest rates alone will move the needle, and more about the cumulative weight of data pointing in favour of the loonie. We expect short-term interest in derivatives to pick up in volatility-linked strategies as traders recalibrate around both raw materials and inflation signals. In moments like this, longer-duration contracts may be less appealing unless supported by strong directional conviction. It’s in the near-term expiries, where macro surprise risk is priced, that premiums may show the most change. Watch those one-week and two-week implieds closely for clues on market leanings ahead of any dominant breakout or retracement pattern. Create your live VT Markets account and start trading now. اکنون تجارت را شروع کنید – برای ایجاد حساب VT Markets زنده خود اینجا را کلیک کنید