The Canadian dollar traded firmer against major peers, with USD/CAD down 0.26% to about 1.4160 in European hours on Wednesday. The move tracked a rise in crude after US President Donald Trump said the Memorandum of Understanding with Iran was over. In the same session, WTI climbed more than 2.23% to roughly $73.6 and, after an earlier surge, was up over 7% on the week, a backdrop that tends to support currencies linked to net oil exports.
Attention now turns to Canada’s June labour market report due Friday, where job growth is forecast at 10K versus 87.8K in May. In broader markets, higher oil prices have coincided with demand for safe-haven assets, leaving the US Dollar Index (DXY) near-flat around 101.00 after paring early declines. Traders are also waiting for the Federal Open Market Committee minutes from the June meeting, due at 18:00 GMT, for further direction on the Federal Reserve’s (Fed) policy outlook.
Oil Rally Drives Canadian Dollar Strength
We are seeing the Canadian Dollar hold firm against its peers, with the primary driver being the recent strength in oil prices. As of today, July 8, 2026, West Texas Intermediate (WTI) crude is trading firmly around $94.50 a barrel, its highest level in over a year. This has pushed USD/CAD down to test the 1.3650 support level.
The surge in oil is largely due to renewed supply discipline from OPEC+ and geopolitical tensions in the Middle East, increasing its appeal for net oil exporters like Canada. Oil prices have climbed nearly 6% over the last two weeks alone, a trend that directly supports the value of the loonie. Historically, periods of rapidly rising oil, like we saw in early 2022, have preceded significant CAD strength.
Central Bank Divergence And Market Volatility
However, we must also watch the divergence in central bank policy, which is creating a headwind. Recent hawkish commentary from the Federal Reserve is keeping the US Dollar Index (DXY) elevated near 105.00. This is creating a tug-of-war for the USD/CAD pair, where CAD strength from oil is being met with broad USD strength.
Looking ahead, the main event for us will be the Bank of Canada’s (BoC) interest rate decision on July 15th. While high energy prices would normally support a rate hike, recent data showing Canadian Q2 GDP growth was revised down to 1.8% may give the bank a reason to pause. The market is currently pricing in only a 25% chance of a rate increase next week.
This uncertainty between strong commodities and cautious central bank policy suggests an increase in volatility is likely. We are looking at strategies that benefit from a large price move, regardless of direction, such as long straddles on USD/CAD options expiring after the BoC announcement. This approach allows us to capitalize on the expected price swing without betting on a specific outcome.
