Canadian dollar rises against European currencies as oil prices surge

Thursday 05 March 2026 - 11:50

By: Dakir Madiha

Canadian dollar rises against European currencies as oil prices surge

The Canadian dollar strengthened against several major European currencies this week as crude oil prices climbed sharply amid escalating tensions involving Iran, the United States and Israel.

The USD/CAD exchange rate traded near 1.3660 on Wednesday, with the Canadian dollar holding firm even as global safe haven demand supported the US currency.

The main driver behind the Canadian dollar’s resilience has been the rapid increase in oil prices following the near closure of the Strait of Hormuz. The strategic waterway typically carries around 20 percent of the world’s oil supply.

Joint US and Israeli military strikes against Iran, launched under what has been described as Operation Epic Fury, prompted Iran’s Islamic Revolutionary Guard Corps to declare the strait closed and warn vessels against attempting to pass through the area.

The disruption triggered a surge in crude prices. Brent oil climbed to about $83 per barrel earlier in the week, more than 14 percent higher than levels before the conflict, before stabilizing around $81 by March 4, according to U.S. News.

Goldman Sachs Research estimated that traders had already priced in a geopolitical risk premium of roughly $14 per barrel by March 3. That premium reflects the potential impact of a four week shutdown of oil shipments through the Strait of Hormuz.

As a major energy exporter, Canada tends to benefit when oil prices rise. Analysts note that the correlation between crude prices and the Canadian dollar often strengthens when oil trades above $75 per barrel, a level now clearly exceeded.

The currency, commonly referred to as the loonie, has therefore outperformed the euro, the British pound and the Japanese yen during the recent market turbulence.

However, the Canadian dollar has struggled to gain ground against the US dollar itself. The greenback continues to attract global demand as a safe haven during periods of geopolitical uncertainty.

An analysis by Investing.com said the Canadian currency has remained stronger than most European currencies due to the continued rally in oil prices. Analysts expect the loonie to maintain that advantage as long as energy prices remain elevated and global growth fears do not intensify.

Canada’s monetary policy outlook could also influence the currency’s direction. The Bank of Canada kept its benchmark interest rate unchanged at 2.25 percent in January and is scheduled to announce its next policy decision on March 18.

Rising energy costs have complicated the inflation outlook, even as Canada’s economy contracted by 0.6 percent in the fourth quarter.

The durability of the Canadian dollar’s recent gains will largely depend on how the geopolitical situation evolves. Wall Street strategists warn that oil prices could exceed $100 per barrel if the Strait of Hormuz remains closed for an extended period.

At the same time, analysts caution that a broader global economic slowdown caused by the conflict could weaken the Canadian dollar despite higher oil prices, as risk aversion could ultimately dominate commodity driven support.