The US dollar climbed toward 1.3900 against the Canadian dollar on Monday, supported by a drop in oil prices and easing tensions between the United States and China. The move reinforced the greenback’s broad strength, while commodity-linked currencies like the loonie faced fresh pressure from weaker energy markets.
WTI crude prices softened during the session, undercutting support for the Canadian dollar, which is closely tied to oil exports. Despite improved diplomatic signals between Washington and Beijing, falling oil prices weighed more heavily on sentiment, limiting any potential upside for risk-sensitive currencies. The US dollar’s relative strength remained intact across most major pairs, reflecting investors’ cautious optimism.
Analysts noted that the combination of a softer energy market and global growth optimism tends to have a mixed impact on the Canadian economy. “Stronger risk sentiment can help demand for Canadian goods,” one strategist said, “but when oil prices slip, the loonie almost always takes a hit.” The sensitivity of the Canadian dollar to crude prices remains a key vulnerability for the currency.
Adding to the loonie’s challenges, recent US economic data surprised to the upside, fueling speculation that the Federal Reserve could delay rate cuts. Higher US yields make the greenback more attractive to investors, widening the gap between US and Canadian interest rate expectations. This interest rate divergence continues to favor the dollar over the loonie in the short term.
Meanwhile, Canadian economic data has been mixed, offering little support for the local currency. Concerns about slowing growth and weak business investment have raised doubts about the Bank of Canada’s ability to maintain a hawkish stance if global conditions deteriorate further.
Traders are now focused on upcoming Canadian GDP figures and US inflation data due later this week. Any signs of persistent economic strength in the US could push USD/CAD even higher, while a recovery in oil prices or stronger Canadian domestic numbers might offer the loonie some much-needed support.
