The Canadian Dollar (CAD) is presently the weakest currency among the G10 as markets consider the potential impact of Venezuelan oil supply and uncertainties regarding the USMCA renegotiations. These factors have contributed to the weakening of CAD, which has been underperforming since the weekend according to an analysis by Francesco Pesole from ING.<\/p>\n
The risks associated with increased Venezuelan oil supply could adversely affect Canadian heavy, high-sulphur crude, which previously commanded a premium during Venezuela’s supply shortages. On Monday, the Western Canadian Select-WTI spread widened, reflecting the cautious commodities market. <\/p>\n
The CAD faces further vulnerability due to potential risks from USMCA renegotiation and possible Bank of Canada interest rate cuts expected in 2026. According to a short-term fair value model, the currency pair should be trading above 1.380. Markets might be undervaluing these economic risks, hinting at a potential move towards 1.390 in the USD\/CAD pair.<\/p>\n
Analysts favour alternatives such as NZD, SEK, and NOK over CAD. This preference is based on perceived lower risk levels and more favourable market conditions for these currencies.<\/p>\n
We are seeing the Canadian dollar start the year as the weakest major currency due to concerns over new oil supply from Venezuela and upcoming trade negotiations with the United States. These two factors are creating significant pressure on the loonie. Derivative traders should be positioning for continued weakness in the coming weeks.<\/p>\n
The threat from Venezuelan oil is now tangible, as their output in December 2025 reportedly surpassed 900,000 barrels per day, putting its heavy crude in direct competition with ours. We saw last year how this geopolitical shift caused the price gap between Western Canadian Select and WTI crude to widen. This spread remains a key indicator of the pressure on Canada’s energy sector.<\/p>\n
Beyond oil, there are also political risks that seem underestimated, especially with the formal USMCA trade deal review scheduled for mid-2026. Given that Canada’s economic growth in the final quarter of 2025 was weaker than forecast, the Bank of Canada may have little choice but to consider an interest rate cut this year. We remember how the Bank acted decisively with a surprise cut during the 2015 oil price collapse, setting a precedent for pre-emptive action.<\/p>\n
For traders using derivatives, this points toward a bearish view on the Canadian dollar against its US counterpart. Buying USD\/CAD call options with strike prices approaching the 1.3850 or 1.3900 levels could be a prudent way to trade this expected move. This strategy allows for participation in a potential rally while clearly defining the maximum risk.<\/p>\n
Given these specific headwinds facing Canada, we currently favour other growth-sensitive currencies like the New Zealand dollar and the Norwegian krone. These currencies offer exposure to a positive global outlook without the unique political and commodity risks currently weighing on the loonie. Until the trade and oil situations become clearer, the CAD is likely to remain an underperformer.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Canadian Dollar weakens amid Venezuelan oil impact, USMCA uncertainty, and Bank of Canada rate cut risks.<\/p>\n","protected":false},"author":62,"featured_media":16967,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-38378","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/38378","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=38378"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/38378\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/16967"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=38378"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=38378"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=38378"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}