Canadian Dollar Strengthens as Oil Rally Boosts Loonie Amid Escalating Trade Tensions

The Canadian dollar has strengthened against its US counterpart on Tuesday due to a significant increase in oil prices. The rise in oil prices is attributed to escalating tensions in the Middle East, which have raised concerns about disruptions to global energy supplies.

Oil prices surged to multi-month highs after attacks on Saudi energy facilities and growing concerns over tanker traffic through the Strait of Hormuz. US crude futures were last around $92.73 a barrel according to Reuters data.

The oil rally is helping offset pressure on the Canadian dollar from last week's employment data, which showed the economy lost 41,700 jobs in August while US payrolls rose 162,000. This divergence initially pushed USD/CAD higher as investors reassessed the relative outlook for the Federal Reserve and Bank of Canada.

The trade dispute between Canada and the United States also escalated on Tuesday, with Canada imposing retaliatory tariffs on $20 billion of US goods after bilateral negotiations stalled.