USD/CAD Rises as Canadian Dollar Weighed Down by Oil Prices and Inflation Expectations
The USD/CAD pair has extended its gains for three consecutive days, trading near 1.3840 intraday on Friday. The Canadian dollar's relative weakness is driven by falling crude oil prices, which are weighing down Canada's energy export revenues and terms of trade.
However, there is currently no clear logic for a sustained decline in the crude oil market. Tensions in the Middle East remain elevated, and uncertainties surrounding energy transportation and supply chains are still high. If the conflict escalates further or if energy facilities and transport routes are newly impacted, crude oil prices may regain a supply risk premium.
The strategy team at Royal Bank of Canada believes that the Canadian dollar's current performance may not fully reflect supporting factors from commodity markets. A further strengthening in crude oil and other commodity prices would improve Canada's terms of trade and potentially provide additional support for the loonie.