CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78.1% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
US English

Canadian petrodollar: What is the outlook for USD/CAD as oil prices ease?

By Adrian Holliday

11:25, 4 August 2022

Canadian Flag in shadow - stock photo
Full frame photo of Canadian Flag – Photo: Getty

What more does USD/CAD want? A super-hawkish Bank of Canada appears laser-focused on fighting inflation (8.8% in June), witness a 100 basis point rise last month. High oil and gas prices are keeping things humming for a largely commodity-supported economy. 

OPEC+ has also just agreed to open up the taps but supplies remain super-tight and an extra 100,000 daily barrels doesn’t really touch the supply/demand sides, particularly for President Joe Biden, desperate for an inflation breather for hard-pressed Americans.

Saudi Arabia, while wanting better relations with the US, doesn’t want to oppose Putin or pump up production, risking Russia’s leverage on prices. 

Yet while the loonie has been one of the best performing currencies this year, relative to its peers, USD/CAD – flat this morning at 1.2841 – has diced somewhat lower as oil prices have surged. How to explain?

What is your sentiment on USD/CAD?

Vote to see Traders sentiment!

Canadian dollar has mostly kept pace with the greenback – for how much longer?

Oil not so essential

Viraj Patel at Vanda Research says petro currencies haven’t been as tightly pinned to the oil price given the supply and demand gyrations driving crude markets. “That being said, lower oil prices don’t help – and CAD is slightly more sensitive than the Norwegian krona (NOK) to this story.”

G10 currencies are driven also by wider risk sentiment plus local growth and policy nuance. “I suspect getting the direction of US equities right probably matters more when forming a view on USD/CAD,” he adds.

Citi has called oil down to $45 by the end of 2023 and the higher prices are eating hard into alternatives. Recession risk is rising. While Prime minister Justin Trudeau is popular abroad he is not so well-liked at home, even if some Canadians feel a connection to the family brand. 

Bullish form, still FX analyst Piero Cingari says CAD can still pull on stolid defences, however.  


150.30 Price
+0.190% 1D Chg, %
Long position overnight fee 0.0112%
Short position overnight fee -0.0194%
Overnight fee time 22:00 (UTC)
Spread 0.010


0.66 Price
+0.130% 1D Chg, %
Long position overnight fee -0.0072%
Short position overnight fee -0.0011%
Overnight fee time 22:00 (UTC)
Spread 0.00006


0.66 Price
+0.130% 1D Chg, %
Long position overnight fee -0.0072%
Short position overnight fee -0.0011%
Overnight fee time 22:00 (UTC)
Spread 0.00006


1.08 Price
+0.210% 1D Chg, %
Long position overnight fee -0.0080%
Short position overnight fee -0.0002%
Overnight fee time 22:00 (UTC)
Spread 0.00006

“In the past three weeks, the Loonie (USD/CAD) has been trading in a tight, choppy range between 1.278 and 1.294 from a technical standpoint.”

Even though USD/CAD’s ascendancy has been in place for more than a year, indicating a still-bullish trend, the short-term momentum is shifting towards the Canadian currency believes Cingari.

And while a more hawkish Federal Reserve is a risk, the loonie looks robustly shielded thanks to an equally hawkish Bank of Canada.

USD/CAD teardown – four thoughts

  • Since July 18, the RSI has been below 50 while the MACD fell below the zero line.
  • Short term, a support level of 1.278 (61.8% Fibonacci retracement of the Jun/Jul USD/CAD rally) represents an important test says Cingari. “If USD/CAD breaks down here and then the 200-day moving average at 1.273, it could fall to 1.266 [78.6% Fibonacci retracement]”.
  • Alternatively 1.295 [50% Fibonacci retracement] would be a possible resistance test he adds. “A breakout to the upside would pave the way for 1.305 and then the yearly highs of 1.322. Returning to those levels, however, will necessitate a cocktail of a Fed hawkish shift and a Bank of Canada dovish shift, as well as signs of a significant slowdown in oil demand.”
  • Federal Reserve-Bank of Canada monetary policy divergences are narrowing – check the short-term (2-year) rate differential between US and Canadian Treasuries, almost close to parity, now just nine basis points apart.

USD fade realistic?

The longer-term outlook is harder to know. Europe remains weaned on Russian energy, interest rates are going up everywhere and China-Taiwan tension is flaring. Oil could still remain higher for longer, despite recession risks, though if recession subsides and both the Fed and the Bank of Canada ease off on rate hike cycles then the Canadian dollar may get a boost.

Canada's economy grew 4.6% in the second quarter in contrast to the US second quarter contraction, recent numbers show. Canadian balance of trade numbers for June arrive later today and an employment numbers update arrives tomorrow. It's expected that the Bank of Canada will raise rates by 0.50% next month to 3%.

Markets in this article

1.34859 USD
-0.0038 -0.280%
10.48214 USD
-0.00594 -0.060%

Related topics

Rate this article

Related reading

The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided on this website is for information purposes only and should not be understood as an investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. We do not make any representations or warranty on the accuracy or completeness of the information that is provided on this page. If you rely on the information on this page then you do so entirely on your own risk.

Still looking for a broker you can trust?

Join the 580.000+ traders worldwide that chose to trade with

1. Create & verify your account 2. Make your first deposit 3. You’re all set. Start trading