Oil Strength Keeps Canadian Dollar Afloat Amid US Rate Hike Uncertainty

The Canadian Dollar remains resilient despite a firmer US Dollar, thanks to elevated oil prices and strong commodity-linked performance. At press time, the USD/CAD pair trades around 1.3874, near levels last seen in early June.

The recent surge in long-term US Treasury yields has helped lift the US Dollar, with the benchmark 10-year yield climbing toward 4.75% and the 30-year yield rising above 5.30%, its highest level since 2007. However, oil price movements are likely to remain a key driver of USD/CAD, with analysts at Commerzbank noting that 'the performance of the Canadian dollar has understandably been closely linked to the oil price in recent months.'

The Bank of Canada's influence on interest rates and inflation remains crucial for the CAD. Economists at TD Securities believe that core inflation measures looked a little less benign than prior months, which means 'the Bank of Canada can stay patient as it waits for more clarity around the growth outlook beyond Q2.' They also reiterate that they continue to look for the Bank to stay on hold through 2026.