The Canadian dollar (CAD) has faced challenges despite the recent uptick in oil prices, which typically support the loonie given Canada's status as a major oil exporter. Analysts note that yesterday, the CAD slid against most currencies, underlining its vulnerability even as crude prices increased. Investors are now keenly watching Canadian retail sales data, which is expected to highlight positive growth, potentially offering some support to the loonie.
Recent developments have added layers of complexity to the CAD's performance. The political landscape in Canada shifted significantly with the resignation of Prime Minister Justin Trudeau in January 2025, replaced by Mark Carney amidst a backdrop of political instability. This leadership change could influence investor confidence and subsequently, the CAD. Additionally, escalating trade tensions with the U.S., marked by heavy tariffs on Canadian steel and aluminum, threaten to weigh further on the currency. Retaliatory measures from Canada, including tariffs on U.S. vehicles, have intensified concerns about economic relations.
The Bank of Canada's recent decision to pause interest rate cuts, maintaining the benchmark rate at 2.75%, provided a brief respite for the CAD. However, the lingering uncertainty regarding U.S. trade policy is expected to keep the upside for the loonie limited, as analysts warn of potential risks ahead.
Price action over the past few months reflects the CAD's volatility. Currently, the CAD to USD sits at 14-day lows near 0.7299, 1.5% above its 3-month average of 0.7192, demonstrating relatively stable trading within a 6.3% range. The CAD to EUR is at 30-day lows of 0.6342, slightly below its 3-month average, while the CAD to GBP remains nearer its average at 0.5417. The CAD to JPY recently reached 106.0, well above its average, signaling mixed performance against major currencies.
On the oil front, prices have surged to 90-day highs near $78.85, significantly above the 3-month average of $67.33. This 17.1% increase, however, has not yet translated into supportive gains for the CAD amid broader economic uncertainties.
As market participants navigate the interplay of these factors, the CAD's performance will continue to be heavily influenced by oil market trends, trade dynamics, and domestic economic indicators. Observers recommend monitoring upcoming retail sales figures and geopolitical developments for further insights into the loonie's trajectory.
