CAD Stuck Near One-Week Low as Oil Prices Weigh on Loonie

The Canadian dollar has been hovering near its one-week low due to declining oil prices offsetting the impact of a softer U.S. dollar. The correlation between oil and CAD has been a consistent theme in 2025, with crude oil prices slipping below $78 per barrel this week.

This drop in oil prices reduces Canada's terms of trade, making the Canadian dollar less attractive to foreign investors. As a result, USD/CAD is trading in a narrow range around 1.3650, despite the U.S. dollar index (DXY) retreating from recent highs.

The Bank of Canada's cautious approach to rate adjustments contrasts with the Federal Reserve's data-dependent posture, which could influence the currency pair in the near term. For Canadian businesses and consumers, a weaker loonie can translate into higher import costs, potentially feeding into inflation.