The Canadian dollar strengthened against its U.S. counterpart on Thursday and was headed for its biggest monthly advance since April 2025, as the greenback posted broad-based declines and investors weighed the potential for higher oil prices to lead to interest rate hikes in the coming months.
The loonie was trading 0.5% higher at 1.3610 per U.S. dollar, or 73.48 U.S. cents, after moving in a range of 1.3604 to 1.3690. Since the start of the month, the currency has advanced 2.2%.
“The CAD is getting a lift this morning from a slightly less dovish Bank of Canada and commodity strength, especially oil,” said Tony Valente, a senior FX dealer at AscendantFX. The Bank of Canada on Wednesday said it might have to respond with consecutive interest rate hikes if oil prices stayed high and began pushing up inflation.
“Markets are reassessing the policy outlook following yesterday’s Bank of Canada decision. The BOC was very clear that persistently high energy prices could keep inflation elevated, which has nudged expectations toward potential tightening later this year.”
Investors are leaning toward a rate increase by July and expect two hikes in total by the end of 2026, swap market data showed.
Canada’s economy grew by 0.2% in February from January, matching expectations, while an advanced estimate showed a flat reading for March. That pointed to annualized growth of 1.7% for the first quarter, which would slightly eclipse the BoC’s 1.5% forecast. The U.S. dollar fell against a basket of major currencies as Japanese authorities were reported to have intervened in foreign exchange markets to support the yen. The price of oil, one of Canada’s major exports, was trading 2.3% lower at $104.41 a barrel, after earlier touching a three-week high on concerns the U.S.-Iran war could lead to a protracted Middle East supply disruption.
Canadian bond yields moved lower across the curve. The 10-year was down 4.4 basis points at 3.565%, after touching a one-month high during Wednesday’s session at 3.623%.
