Canadian Dollar Strengthens as Oil Rally Pressures USD/CAD

Written by Sandra Leggero

Sandra Leggero has a background in financial markets, having spent more than 9 years in commodities trading for several European and Asian companies. She holds a degree in Economics from the University of Pavia and specializes in emerging markets.

, | Updated: July 14, 2026

Key Moments

USD/CAD trades near 1.4150 during Asian hours on Tuesday, extending its recent losing streak after a flat session on Monday.
Higher crude oil prices, driven by rising geopolitical tensions in the Middle East, continue to support the commodity-linked Canadian Dollar.
The CME FedWatch Tool shows a 51% chance of a Federal Reserve rate hike in September, compared with a 23% probability that rates will remain unchanged.

Oil-Fueled CAD Gains Pressure USD/CAD

USD/CAD trades near 1.4150 during Asian hours on Tuesday after ending Monday little changed. The pair remains under pressure as the Canadian Dollar (CAD) gains support from stronger crude oil prices. Since Canada is the largest crude exporter to the United States, higher oil prices often strengthen the CAD.

As a result, stronger oil has pushed USD/CAD lower. However, the pair has avoided a steeper decline because safe-haven demand continues to support the US Dollar (USD).

Middle East Tensions Lift Oil Prices

Crude oil prices continue to rise as tensions in the Middle East fuel fears of supply disruptions. US President Donald Trump reinstated a naval blockade targeting Iranian vessels and their customers in the Strait of Hormuz. Meanwhile, he announced a 20% reimbursement fee on all other commercial cargo passing through the strategic waterway.

Trump said the United States deserves financial compensation for protecting this vital shipping route. He also named Saudi Arabia, the United Arab Emirates, Qatar, Bahrain, and Kuwait as countries benefiting from US security efforts.

Higher oil prices usually support the Canadian Dollar. However, they have also revived inflation concerns. As a result, investors increasingly expect the Federal Reserve (Fed) to maintain a tighter policy stance for longer.

Fed Outlook Limits USD/CAD Decline

Even so, USD/CAD has found some support. Rising geopolitical risks continue to boost demand for safe-haven assets, including the US Dollar. Therefore, traders must balance stronger oil-driven support for the CAD against the USD’s defensive appeal and the prospect of a more hawkish Federal Reserve.

Meanwhile, expectations for US monetary policy have shifted. The CME FedWatch Tool now shows a 51% chance of a September rate hike, compared with a 23% probability that rates will remain unchanged. These expectations reflect concerns that higher energy prices could keep inflation elevated and delay policy easing.

Instrument / Indicator	Latest Reading
USD/CAD	Near 1.4150 during Tuesday’s Asian session
Fed September rate hike probability	51%
Fed September no-change probability	23%

Focus Turns to US Inflation Data

Traders are now preparing for two major US events on Tuesday. First, markets will receive the June Consumer Price Index (CPI) report. Economists expect headline CPI to decline 0.1% month over month, while core CPI is forecast to increase 0.3%.

Later in the day, Federal Reserve Chair Kevin Warsh will testify before Congress. Investors will closely watch his remarks for fresh guidance on the Fed’s policy outlook and whether officials support the market’s increasingly hawkish expectations.

What Drives the Canadian Dollar?

Several factors influence the Canadian Dollar. These include Bank of Canada (BoC) interest rates, oil prices, economic growth, inflation, and Canada’s trade balance. In addition, broader market sentiment also plays an important role. Risk-on conditions often support the CAD, while risk-off periods typically favor safe-haven currencies.

Moreover, the health of the US economy remains critical because the United States is Canada’s largest trading partner.

Bank of Canada Policy Matters

The Bank of Canada strongly influences the Canadian Dollar through its interest rate decisions. The policy rate affects borrowing costs across the economy and helps keep inflation within the bank’s 1% to 3% target range. In general, higher interest rates support the Canadian Dollar.

Additionally, the BoC can use quantitative easing (QE) or quantitative tightening (QT) to influence financial conditions. QE generally weakens the Canadian Dollar, while QT tends to strengthen it.

Oil Remains a Key CAD Driver

Oil prices remain one of the strongest drivers of the Canadian Dollar because petroleum is Canada’s largest export. Rising crude prices usually strengthen the currency by boosting export revenues and increasing demand for the CAD. Conversely, lower oil prices often weaken the currency. Strong oil markets can also improve Canada’s trade balance, providing additional support.

Inflation and Economic Data Shape the Outlook

Inflation can also strengthen the Canadian Dollar. Higher inflation often encourages the Bank of Canada to raise interest rates. Consequently, higher yields may attract foreign investment and increase demand for the currency.

Economic data also influence the CAD’s outlook. Investors closely monitor GDP, PMI surveys, employment figures, and consumer confidence. Strong data can attract capital and encourage tighter BoC policy. In contrast, weaker economic reports often weigh on the Canadian Dollar.