Last Updated on January 29, 2026 by Deon
Strong Loonie The Canadian Dollar is for the first time since late 2024 flexing its muscle. The USD/CAD pair stayed weak on Thursday, dropped to fresh YTD lows. Although the USD is rudderless, a triple threat from surging energy and a swaggering BoC has knocked the Loonie off to the downside.
Here’s the three forces driving this shift.
Oil Is the Loonie’s Extremely Ignorable Factor
Because it is one of the world’s top oil exporters, Canada’s currency has long tended to rise and fall with “Black Gold.” Now, it is oil that is doing the heavy lifting.
The Iran Premium: Washington has been stepping up new military pressure on Tehran and the markets are pricing in a large risk of potential supply disruption.
Up, Up and Away: West Texas Intermediate crude surged more than 4% to $65.90—its highest level since September. Every dollar tacked onto a barrel of oil is another tailwind on the Canadian economy.
A Tale of Two Central Banks
But the real story is the ever-widening chasm between the Bank of Canada and the U.S. Federal Reserve. Both banks kept their rates on hold this week, but the “vibes” is quite different between them:
The Insatiable BoC: The Bank of Canada left the overnight rate unchanged at 2.25%, and indicated that the overnight policy rate is “appropriate.” Indeed, traders are already betting that there’s close to a 44 percent chance of a rate hike in the next year.
The Fed’s Pragmatic Crouch: Meanwhile across the border, the Fed is living in an alternate reality. Even with that sticky inflation, the market is now pricing in two rate cuts later this year.
The Result: With Canada on the rise and the U.S. looking to reduce, investors shift money toward the Loonie when it wants a higher yield.
Mixed Messages on the U.S. Economy
Stronger strength saw the Canadian Dollar rise, with the U.S. Dollar batting a “mixed bag” of economic data.
Jobs: Weekly jobless claims (209K) were higher than the 205K that analysts had anticipated and could indicate a small cool down in the U.S. labor market.
The Greenback Plunge: DXY, or U.S. Dollar index is trading close to four years low and has failed to develop a substantial bounce back as investors bet against the long term stability on wall street in America!
The Verdict: Advantage Canada
For now the only way for the USD/CAD is lower. With the USD under pressure on the so called “debasement trade” and geopolitical hot-potato-juggling keeping oil bid, the CAD is back as a leader of commodity currencies.
