HSBC analysts report that the Canadian Dollar (CAD) has outperformed most G10 peers during the Middle East conflict, but this outperformance is now beginning to ease. They expect CAD strength to moderate in the coming weeks, citing elevated oil prices as a supportive factor, particularly against energy-importing G10 currencies. However, HSBC emphasizes that relative monetary policy and Bank of Canada (BoC) expectations are becoming more decisive for CAD performance. Their economists anticipate the BoC will remain on hold through 2026 and 2027, though hawkish risks exist if energy disruptions persist and inflation expectations rise significantly. Markets are currently pricing in around two BoC rate hikes this year, as of Bloomberg data on 26 March 2026, but the balance of risks appears skewed to the downside for CAD, especially if labor market conditions soften further [1].
Meanwhile, the USD/CAD pair continues its winning streak for the sixth consecutive day, trading around 1.3920 during European hours on Monday. The US Dollar (USD) has regained ground amid increased safe-haven demand due to rising doubts over a resolution to the Iran war. The Financial Times reported that President Donald Trump stated the US could "take the oil in Iran," including seizing the export hub of Kharg Island, though he also mentioned that discussions with Tehran are "doing extremely well" and a deal could be achievable "fairly quickly." Iran-backed Houthi forces in Yemen launched strikes on Israel over the weekend, widening the regional conflict and threatening Red Sea shipping routes and Saudi energy infrastructure, which heightens risks to global supply [2].
The commodity-linked CAD remains subdued as oil prices, after three days of gains, edge lower with West Texas Intermediate (WTI) trading around $98.70 per barrel at the time of writing. Despite Canada’s status as the largest crude exporter to the US, steady oil prices have not provided significant support to the CAD. Traders are also closely watching upcoming events, including a speech from Fed chair Jerome Powell and key economic releases such as Nonfarm Payrolls (NFP) and the ISM Purchasing Managers’ Index (PMI), which could further influence USD/CAD dynamics [2].
Both sources highlight that the CAD's performance is increasingly tied to monetary policy expectations and oil price movements. HSBC notes that while oil prices remain elevated, the CAD's resilience is expected to fade, particularly if labor market conditions deteriorate and BoC rate hike expectations are repriced [1]. Source 2 underscores the impact of geopolitical tensions and safe-haven flows into the USD, as well as the subdued oil prices, on the CAD's weakness [2].
CONCLUSION
The Canadian Dollar's recent outperformance is moderating as monetary policy expectations and geopolitical tensions weigh on its outlook. While elevated oil prices offer some support, the CAD remains subdued amid steady crude prices and a stronger US Dollar. Market participants are closely monitoring upcoming economic data and central bank signals for further direction.