Surging oil prices have had divergent impacts on major currencies, with the Canadian Dollar (CAD) strengthening against the US Dollar (USD), while the Indian Rupee (INR) has retreated from its recent highs. On Tuesday, the USD/CAD pair fell by 0.25% to near 1.3780, as the Loonie outperformed due to a rally in oil prices, which climbed around 0.8% to near $91.50 per barrel, approaching a one-month high of $92.25 last seen on June 8 [1]. The Canadian Dollar was the strongest against the New Zealand Dollar among major currencies, and its gains are attributed to Canada’s status as a net energy exporter benefiting from higher energy prices [1].
Conversely, the Indian Rupee corrected from its two-month high, with the USD/INR pair rebounding to near 94.68 from a two-month low of 94.29 posted last week [2]. The MCX Crude Oil contract expiring on September 21 rose 0.6% to Rs. 8,818, the highest since May 22 [2]. Analysts at OCBC noted that the renewed rise in oil prices and higher US Treasury yields create an unfavorable backdrop for Asia ex-Japan currencies, including the INR, due to the region’s dependence on energy imports. This dynamic is expected to restrain FX appreciation even as the US Dollar remains under pressure [2].
Geopolitical tensions, particularly the closure of the Strait of Hormuz and ongoing clashes between the US and Iran, have heightened supply risks and contributed to the oil rally. Commerzbank analysts highlighted that the latest escalation increases the risk that recent improvements in oil flows through Hormuz could be reversed, with observable tanker traffic remaining sparse and some vessels transiting with military support or tracking systems switched off [2]. Societe Generale strategists indicated that Brent crude has crossed a multi-month descending trend line and is advancing toward the July peak around $102, with potential to reach $108/$110 and $117 if the uptrend continues, which would further strain the Indian currency [2].
Both articles note that the US Dollar Index (DXY) is trading lower, down 0.11% to near 98.80 according to [1] and 0.1% lower to near 98.80 according to [2]. Market participants are cautious ahead of the upcoming US Producer Price Index (PPI) and Consumer Price Index (CPI) data for August, scheduled for Thursday and Friday, respectively [1][2]. TD Securities expects the inflation data to be subdued enough to keep the Federal Reserve on hold, with the PCE translation being key for the policy outlook. They project that the Fed will remain on hold over their forecast horizon, as inflation is expected to stay high for the rest of the year while the labor market has stabilized [2].
Technical analysis for USD/CAD shows the pair trading at 1.3783, maintaining a bearish near-term tone as it remains below the 20-day Exponential Moving Average at 1.3865 and the 61.8% Fibonacci retracement at 1.3817. The Relative Strength Index is at about 39, indicating persistent downside pressure [1].
CONCLUSION
The surge in oil prices has strengthened the Canadian Dollar while putting pressure on the Indian Rupee, reflecting the differing impacts of energy market dynamics on net exporters and importers. Geopolitical risks and upcoming US inflation data are key factors shaping currency movements and market sentiment. Investors remain cautious as further oil price increases and US economic data releases could drive additional volatility.