Outlook
The Canadian dollar remains sensitive to oil moves and the policy stance gap between the U.S. Federal Reserve and the Bank of Canada. With oil hovering at 90-day highs around 70.26 (supporting the commodity link), the loonie could stabilise or edge modestly higher if oil stays firm. However, the broader backdrop of a divergent Fed/BoC policy path and limited Canadian data keep gains limited. Expect the CAD to drift in a narrow range near current levels unless oil reverses meaningfully or domestic data surprise to the upside or downside.
Key drivers
- Oil prices: Oil at multi-month highs supports Canada’s terms of trade and the CAD; a sustained pullback in oil would likely weigh on the loonie.
- Policy divergence: The Fed’s easing path versus the BoC’s cautious stance remains a headwind for the CAD against the USD.
- Trade dynamics: Tensions and policy moves with the U.S. (tariffs in the prior cycle) add a layer of downside risk to CAD sentiment.
- Commodity sensitivity and risk mood: CAD remains highly responsive to global risk appetite and energy demand shifts.
- Canadian data flow: A dearth of near-term Canadian data can keep moves modest and data-driven.
Range
CAD to USD is near 0.7301, 14-day lows, around 0.6% above its 3-month average of 0.7255, trading in a 4.6% range from 0.7087 to 0.7413.
CAD to EUR sits at 0.6193, near its 3-month average, within a 1.6% range from 0.6120 to 0.6217.
CAD to GBP at 0.5410, near its 3-month average, within a 2.1% range from 0.5322 to 0.5434.
CAD to JPY at 112.9, just below its 3-month average, within a 4.2% range from 110.7 to 115.3.
Oil (USD) at about 70.26, a 90-day high, about 9.7% above its 3-month average of 64.02, with a 19.0% range from 59.04 to 70.26.
What could change it
- Oil direction: A sustained rally supports the CAD; a sharp retreat could push CAD lower toward the 0.72 area or below.
- Canadian data surprises: Strong inflation or growth prints could bolster the BoC’s stance and help CAD; weak data could deepen downside.
- BoC policy signals: A hawkish shift or a surprise rate hold versus further easing would alter rate differentials and CAD momentum.
- U.S. policy and trade developments: Further Fed easing or escalation/fading of U.S.-Canada trade tensions would influence USD/CAD direction.
- Global risk sentiment: Risk-on episodes typically benefit the CAD, while risk-off modes tend to weigh on commodity-linked currencies.
