The Canadian Dollar rose against most major currencies during Thursday’s European session, but not against the US Dollar. The move followed an 8% rise in WTI oil to about $102.00 after US President Donald Trump warned of stronger attacks on Iran within the next two to three weeks.
Trump said the US would “hit Iran extremely hard over the next two to three weeks,” raising concerns about more damage to Gulf energy sites and longer supply disruptions. Leaders also focused on Iran’s control near the Strait of Hormuz, a route for almost 20% of global oil supply, while France’s President Emmanuel Macron said reopening it without military action is difficult.
Safe Haven Demand
Demand for safe-haven assets rose, supporting the US Dollar. The US Dollar Index (DXY) was up 0.6% near 100.15.
The Canadian Dollar is shaped by Bank of Canada interest rates, oil prices, economic growth, inflation, and the trade balance. Market risk appetite and the strength of the US economy, Canada’s largest trading partner, also affect it.
The Bank of Canada aims to keep inflation within 1–3% by adjusting rates and can also use quantitative easing or tightening. Oil is Canada’s largest export, so higher prices can lift the currency and improve the trade balance.
We remember from past events, like the Iran tensions in 2025, that a spike in oil prices is typically good for the Canadian dollar. However, the US dollar also strengthened at that time due to its safe-haven appeal during a global crisis. This creates a complex dynamic where the CAD gains against most currencies but can struggle against the USD.
Trading Implications
Currently, West Texas Intermediate (WTI) crude is trading firmly above $85 per barrel, boosted by OPEC+ extending production cuts and ongoing geopolitical risks. These elevated energy prices provide a strong fundamental support for the loonie. This is especially true as Statistics Canada data from the last quarter of 2025 confirmed energy products still make up over 20% of the nation’s total exports.
Given this backdrop, we should consider that the CAD is likely to outperform the currencies of major oil-importing nations. For derivative traders, this suggests exploring long CAD positions against the Euro or Japanese Yen in the coming weeks. The European Central Bank and Bank of Japan are both signaling more dovish monetary policies than the Bank of Canada (BoC), creating a favorable rate differential.
The situation with the US dollar remains the key challenge, much like it was in 2025. The US Dollar Index (DXY) is holding strong near 104, as recent inflation data has pushed back expectations for Federal Reserve interest rate cuts. This persistent dollar strength is acting as a headwind for the USD/CAD pair, preventing a sharp fall even with high oil prices.
Therefore, while buying CAD seems logical, the specific pairing is critical. The push from high oil prices and the pull from a strong US dollar could keep USD/CAD trading within a defined range. Volatility options on the pair might be a better strategy than a simple directional bet, especially as the Bank of Canada is widely expected to cut rates before the Federal Reserve does this year.
