The Canadian dollar (CAD) experienced a decline recently, largely tied to a significant drop in oil prices, which fell to a four-month low amid market concerns about oversupply ahead of the upcoming OPEC meeting. Analysts highlighted that the CAD hit a low of 1.3960 against the U.S. dollar, reflecting a 4.5-month trough as oil prices dropped by 2.1% to approximately $60.48 per barrel. The linkage between the loonie and commodity prices remains strong; as one of the largest oil exporters, Canada’s economy is sensitive to fluctuations in energy prices.
Looking ahead, a Reuters poll suggests potential for a rebound in the CAD if the U.S. Federal Reserve moves ahead with anticipated interest rate cuts. Such cuts could weaken the U.S. dollar and allow the CAD to appreciate by an estimated 2.8% over the next three months. However, prevailing challenges also loom large. The Canadian manufacturing sector reported a contraction, with the S&P Global Canada Manufacturing PMI dropping to 47.7 in September, raising expectations of possible Bank of Canada interest rate cuts. Concerns regarding trade agreement negotiations, particularly the upcoming review of the U.S.-Mexico-Canada Agreement (USMCA) in 2026, are adding to the current market anxiety surrounding the CAD.
Current exchange rates reveal that the CAD is trading at 0.7170 against the USD, which is 1.1% below its three-month average, while against the EUR, it stands at 0.6124, also 1.2% below its average. The Canadian dollar has maintained relatively stable ranges over the past few months, although volatility persists due to external market pressures.
Despite hitting 60-day highs against the JPY at around 107.8, the broader context remains challenging for the CAD. Overall, the future trajectory of the loonie will depend heavily on oil market trends, decisions from the Bank of Canada regarding interest rates, and developments in U.S.-Canada trade relations. Market participants are advised to stay attentive to these factors as they navigate their international transactions.
