Increased crude oil prices have strengthened the Canadian Dollar, resulting in downward pressure on the USD/CAD pair. Drone attacks targeting Saudi and Russian oil infrastructure have intensified market anxieties regarding potential disruptions in energy supply. Geopolitical risks and uncertainty surrounding Federal Reserve interest-rate policy persist in influencing overall market sentiment. USD/CAD extends its losing streak for the sixth consecutive day, trading around 1.4040 during Asian hours on Thursday. The currency pair faced downward pressure as the commodity-linked Canadian Dollar strengthened due to a rally in crude oil prices. Oil prices experienced an uptick in response to a drone assault on Saudi Aramco’s Shaybah oil field, which led to two fatalities. This incident has heightened geopolitical tensions in the Middle East and sparked apprehensions regarding possible disruptions to energy supply.
In a further development of the regional geopolitical landscape, Iranian Foreign Minister Abbas Araghchi articulated on Wednesday that the United States is required to remove its naval blockade and exhibit a sincere dedication to achieving a diplomatic resolution. Araghchi underscored Tehran’s preparedness to re-engage in negotiations contingent upon tangible proof of a genuine American commitment to achieving a fair and lasting resolution to the conflict. In tandem, Ukraine executed large-scale drone strikes against critical Russian oil infrastructure this week, signalling Kyiv’s intent to impede Moscow’s planned expansion of diesel exports under a recent agreement between Presidents Trump and Putin.
Meanwhile, market participants are meticulously assessing the direction of the Federal Reserve’s monetary policy as they approach next week’s meeting. Uncertainty lingers following Fed Chair Kevin Warsh’s decision last week to withhold guidance regarding the timing or necessity of forthcoming interest rate increases. Strategists at Societe Generale flag that the latest IMF projections underscore a deteriorating relative backdrop for Canada, noting that “with the IMF’s US growth forecast revised up to 2.5% this year (while remaining at 2.1% in 2027), the North American growth gap is widening.”
They point out that “the chart on the right shows relative Bloomberg consensus growth forecasts for 2027, but the IMF’s assessment (1.2% growth in Canada next year versus 2.1% in the US) is even less favourable for Canada,” reinforcing the idea of weaker Canadian momentum. At the same time, Societe Generale highlight the policy and market-rate dimension, observing that “the chart on the left shows the two-year rate differential plotted against USD/CAD,” underlining how relative front-end yields continue to frame the Canadian Dollar’s performance against the US Dollar.
