- Despite rising oil prices, the Canadian dollar has weakened against the US dollar as interest rate differentials and safe haven considerations rule
- The current USD/CAD uptrend could be disrupted if the rumoured negotiations between the US and Iran bear good fruit
- Uncertainty in trade relations between the US and Canada could also disrupt USD/CAD trajectory
Over the past two weeks, the US dollar has gained ground against the Canadian dollar, pushing USD/CAD to trade near 1.374 as of this writing. It doesn’t make sense on the surface. Canada is one of the world’s biggest exporters of energy, and crude oil prices have gone up sharply because of the conflict in the Middle East. Yet the Canadian dollar has continued to lose ground against the US dollar over the past two weeks. So what’s happening?
Safe-Haven Demand Beats Oil Premium
The textbook view is that a rising oil price strengthens the Canadian dollar, since energy exports generate foreign exchange inflows into Canada. That logic is sound in a stable geopolitical environment. But the current environment is anything but stable. The interest rate differential between the US and Canada, roughly 1.75% points, in favour of the USD, is making the US dollar more attractive for carry traders, and is outweighing even the oil factor.
Additionally, uncertainties in trade policy under the current US administration add an element of risk. Any renewed threats of tariffs could negatively impact Canadian economic growth and investor sentiment. Moreover, if the global economy slows more sharply than expected due to prolonged high oil prices, demand for Canadian exports could fall, reducing the currency’s sensitivity to commodity prices.
Is the Current USD/CAD Uptrend Sustainable?
The honest answer is that the uptrend is fragile. Most analysts see a pause or pullback coming soon after oil settles and nerves calm down. Right now, many expect USD/CAD to keep rising while global tensions hold on. Still, it feels like the greenback might be running out of steam.
The recent rally has been driven primarily by safe-haven demand and interest rate differentials, but it has overlooked the possibility of a rapid shift toward peace. Should ongoing negotiations between President Trump and Iran lead to de-escalation, the demand for safe-haven assets like the US dollar could quickly diminish. Such a shift might trigger a sharp correction in USD/CAD, potentially bringing the rate back toward 1.3500.
USD/CAD Forecast
USD/CAD pivots at 1.372 and the RSI reading of 58 signals control by buyers. Immediate resistance sits at 1.376 and 1.380, which currently aligns with the 20-day SMA level. On the downside, the first major support is the 50-day SMA at 1.368, followed by a much stronger floor at 1.364.
USD/CAD forex pair on the daily chart showing the key levels of support and resistance on March 24, 2026. Created on TradingView
Safe-haven demand for the US dollar is currently overpowering the oil-driven boost to the Loonie.
If the Iran conflict were to de-escalate, it would put an end to both oil-driven inflation fears and the safe-haven premium on the USD. This would challenge the current USD/CAD uptrend.
With US rates at 3.75% and Canadian rates at 2.25%, global investors earn more interest holding US dollars. This carry trade creates constant demand for the Greenback against the Loonie.
