While many traders instinctively look to short CAD when oil spikes, this time the dynamics are different. The real trade is long USDCAD not because oil will collapse, but because Canada’s economy is deeply exposed to a global slowdown, and the Bank of Canada is already near the end of its hiking cycle.

Here’s the macro picture: The Israel–Iran crisis is injecting severe tail risk into global growth forecasts. If the Strait of Hormuz is disrupted or energy prices spike above tolerance levels, the first-order effect will be stagflationary higher input costs, weaker real demand, tighter financial conditions.

In that scenario, the Fed may delay cuts, while the Bank of Canada will have little choice but to cut sooner and faster, as Canadian households are some of the most leveraged in the G7. Housing sensitivity to rates is much higher in Canada than in the U.S. or Europe. So if oil spikes and global growth rolls over, CAD becomes vulnerable not because of oil, but because the BoC will be forced to ease into a slowdown that oil price strength can’t rescue.

There’s also a flow angle: in a classic risk-off episode, capital tends to prefer USD liquidity over oil-linked currencies even if oil is up. If equity markets begin to reprice Middle East risk, USDCAD can rise on both monetary and flow grounds.

LONG USDCAD

Jun 16 2025

Pending

Published today

1.35618

Current price

1.35709

Entry price