Oil Is Surging, but the Canadian Dollar Is Not

Rising oil prices are no longer providing their usual support to the Canadian dollar because trade and growth risks linked to the United States have become more important.

• Brent crude rose roughly 66% this year, from about $61 per barrel in January to more than $100, while the Canadian dollar gained only about 0.4% against the euro.
• The 2022–2024 Brent/CAD-EUR relationship would have implied roughly a 2.2% Canadian-dollar appreciation, making the actual move only about one-fifth of the historical implication.
• About two-thirds of Canadian merchandise exports still go to the United States, down from roughly three-quarters before the latest trade disruption; tariffs and uncertainty have reduced exports, delayed investment and weakened the growth outlook.
• Canada imposed retaliatory tariffs on roughly $20 billion of U.S. goods after negotiations failed, while the United States added restrictions on Canadian imports and federal procurement; uncertainty also extends to the future of USMCA.
• The Bank of Canada describes excess supply, weaker exports and subdued business investment, while the U.S.-Canada five-year yield differential has widened to roughly 1.1 percentage points; oil and gas still represent about one-fifth of Canadian merchandise exports.

Takeaway: Persistent trade uncertainty may continue to overwhelm the currency benefit of higher oil prices, so investors should not assume that a further crude rally will translate into a strong Canadian dollar.