National Bank of Canada (NBC) economists Stéfane Marion and Kyle Dahms report that the Canadian Dollar (CAD) initially outperformed other reserve currencies following a surge in WTI crude oil prices to $100 per barrel, particularly after the Iran conflict erupted. At that time, the CAD was the only reserve currency gaining ground against the U.S. dollar. However, the currency has since lost momentum, depreciating by 2.1% against the greenback and joining a broader trend of major currency declines [1].
Despite markets pricing in close to 50 basis points of Bank of Canada tightening this year, NBC economists note that the loonie's resilience is supported by Canada's strong energy trade surplus and relative insulation from global oil supply shocks. This energy buffer is expected to keep speculators from turning as bearish on the CAD as they did at the end of last year, given the size of Canada's fossil-fuel trade balance relative to GDP [1].
January GDP data for Canada beat consensus expectations with a 0.1% increase, although only 9 out of 20 sectors recorded monthly output gains. NBC economists believe this leaves the Canadian economy somewhat more resilient in the coming months, but not enough to justify Bank of Canada tightening. They now anticipate further CAD depreciation through Q2 2026, projecting USD/CAD at 1.41 as markets unwind expectations for Bank of Canada tightening, largely due to the prolonged Iran conflict [1].
Looking ahead to the second half of 2026, NBC maintains the possibility of CAD appreciation, contingent on improved trade discussions between Washington and Ottawa and the implementation of more credible pro-energy and industrial policy support from Ottawa [1].
CONCLUSION
The Canadian Dollar has recently weakened despite initial gains from higher oil prices and remains pressured by ongoing geopolitical tensions and shifting monetary policy expectations. NBC economists forecast further depreciation in the near term, with potential for recovery in late 2026 if trade relations and energy policy improve. Market participants should monitor developments in trade talks and Ottawa's policy direction for signs of future CAD strength.