The Canadian Dollar and Oil Prices
The Canadian Dollar might find support from rising Oil prices, affected by supply risks due to Iran protests. Iran exports nearly 2 million bpd and is OPEC’s fourth largest producer, making the situation critical for global supply.
Canada’s employment grew by 8,000 in December, with unemployment rising to 6.8% as more people entered the labour force. RBC noted the labour market is recovering but remains uneven.
The Canadian Dollar is influenced by BoC’s interest rates, oil prices, and the country’s economic health. High interest rates tend to benefit CAD, while increased oil prices boost the currency’s value. Inflation and economic data releases are critical in determining CAD’s strength.
Expectations for the EUR/CAD
We are seeing the EUR/CAD push above 1.6200, driven largely by expectations that the European Central Bank will hold its interest rate steady at 4.0%. With Eurozone headline inflation hitting the ECB’s 2.0% target last month in December 2025, the bank has little reason to consider further cuts unless the economic outlook worsens dramatically. This stability in policy is making the Euro an attractive hold for the moment.
However, we must consider the Canadian dollar’s own strengths, which could limit this upward move. The Bank of Canada’s key interest rate is at 5.0%, creating a significant yield advantage over the Euro that typically supports the CAD. While Canada’s unemployment rate did tick up to 6.8% in December 2025, the labor market isn’t showing signs of a major collapse, meaning the BoC isn’t under immediate pressure to cut its higher rate.
The most significant factor for the CAD right now is the price of oil, which is a major tailwind. West Texas Intermediate (WTI) crude is now trading above $85 a barrel, a level we haven’t seen since last fall, due to supply fears from growing protests in Iran. Historically, geopolitical events in the Middle East that threaten oil supply, such as the drone attacks we saw back in 2024, have consistently pushed oil prices and the Canadian dollar higher.
Geopolitical Risks and Market Volatility
Traders should also watch the new geopolitical risk from talks about a NATO military presence in Greenland. This kind of uncertainty often increases market volatility rather than setting a clear direction for currencies. This suggests that options strategies designed to profit from price swings, such as long straddles, could be effective in the coming weeks.
Given these conflicting drivers, selling out-of-the-money call options on EUR/CAD could be a sensible approach to generate income, as the pair’s potential gains seem capped by strong oil prices. For those anticipating further oil-driven strength in the loonie, buying put options on EUR/CAD offers a way to speculate on a downturn with a clearly defined and limited risk.
