Canadian Dollar Hits New Recovery Peak as Oil Prices Rise and Fed Expectations Shift

Canadian Dollar Hits New Recovery Peak as Oil Prices Rise and Fed Expectations Shift

CAD Strengthens to Multi-Month Highs

The Canadian Dollar (CAD) continues its upward trajectory, hitting its strongest level since early October. The currency’s rally is underpinned by a powerful combination of rising crude oil prices, narrowing yield spreads, and a recent policy shift from the Bank of Canada (BoC).

Central Bank Divergence Favors CAD

Markets are increasingly pricing in neutral to dovish guidance from the BoC, following last week's meeting, while recent soft US CPI data has encouraged speculation that the Federal Reserve could pivot to rate cuts later this year. This relative policy divergence is amplifying demand for the Canadian currency.

Oil Prices Add Momentum

The CAD, traditionally sensitive to energy markets, is benefiting from renewed WTI crude oil strength, which boosts Canada’s terms of trade. The rally in commodities provides an additional tailwind, reinforcing bullish CAD sentiment.

USD/CAD Outlook and Forecast

The USD/CAD pair has dropped to new multi-month lows, trading near 1.3681, which Scotiabank identifies as its fair value (FV) target. Projections see USD/CAD ending 2025 at 1.34 and 2026 at 1.28, reflecting sustained CAD strength. Technically, the pair is trending bearish with momentum building toward a test of 1.36 support.

Related Reads on Tredu:

• Oil Market Watch: How Crude Prices Shape CAD Trends
• BoC Policy Analysis: Neutral Stance or Pre-Cut Signal?
• USD/CAD Technical Breakdown and Key Levels