How Oil Prices Influence the USD/CAD Currency Pair

USD/CAD and Oil Prices – A Relationship You Shouldn’t Overlook

Canada is one of the world’s major oil exporters, particularly in crude oil. As a result, fluctuations in oil prices have a direct impact on the country’s revenue, which in turn clearly influences the value of the Canadian dollar (CAD).

When oil prices rise, Canada earns more from exports, the domestic economy strengthens, and investors tend to increase their holdings in CAD. This drives the CAD higher. In the USD/CAD pair—where USD is the base currency—a stronger CAD causes the pair’s price to fall.

Conversely, when oil prices decline, demand for CAD drops, weakening the currency and pushing the USD/CAD pair higher.

This relationship isn’t just theoretical—it plays out in real market movements during key moments. For example:

• In 2022, oil prices surged due to supply concerns → USD/CAD dropped steadily
• In mid-2023, oil prices fell as China’s economy slowed → USD/CAD climbed as traders sold off CAD

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Reading the Forex Market Direction for USD/CAD

For traders focusing on the USD/CAD currency pair in the Forex market, relying on a single type of analysis may not be enough. It’s essential to consider both technical and fundamental perspectives. While charts provide clear technical signals, overlooking economic news and global events can lead to misinformed decisions.

Key factors to closely monitor include:

• Oil price trends, both WTI and Brent. It's important to track these prices on both daily and weekly timeframes, as they directly influence the direction of the Canadian dollar (CAD).
• Technical indicators such as RSI and Bollinger Bands, which help identify potential price reversals and improve the accuracy of trade entries.
• Major energy-related news, including U.S. crude oil inventory reports, OPEC+ production decisions, and changes in U.S. output levels. These factors can all trigger strong market movements.

Equally important are Canadian economic indicators such as GDP figures, the Consumer Price Index (CPI), and interest rate announcements from the Bank of Canada (BoC). These data points often have a direct impact on market sentiment toward the CAD and can cause significant volatility in the Forex market—especially when the results come out as a surprise.

Oil Price Outlook for 2025 and Its Impact on the Forex Market and USD/CAD

In 2025, the oil market continues to face a range of uncertainties. These include geopolitical tensions that could flare up at any moment, production decisions from OPEC, and shifting energy policies from major economies such as the U.S., China, and the European Union—many of which are increasingly prioritizing clean energy. All of these factors are contributing to long-term pressure on global oil demand.

However, in the short to medium term, demand for oil from manufacturing, transportation, and travel remains solid—especially in developing countries like India, Indonesia, and parts of Africa, where oil remains a primary energy source for driving economic activity.

As a result, if oil prices in 2025 continue to rise steadily, the Canadian dollar (CAD) is likely to strengthen, as higher export revenues from oil will support Canada’s economy. This would naturally lead to a weaker USD/CAD pair, given the stronger CAD.

On the other hand, if the global economy slows down or structural changes—such as the rising adoption of electric vehicles—lead to a drop in oil demand, prices could soften. This would likely put downward pressure on the CAD, potentially causing the USD/CAD pair to rebound in the medium to long term.

What Is the Best Time to Trade USD/CAD in the Forex Market?

Knowing the Forex market’s operating hours is essential for traders to monitor the market during the most active periods. Although the Forex market is open 24 hours a day, it’s divided into four major sessions, each with its own characteristics—especially when it comes to trading USD/CAD, which tends to see more movement during specific news-driven periods.

The four main Forex trading sessions (Thailand time) are:

• Sydney: 05:00 – 14:00
• Tokyo: 06:00 – 15:00
• London: 14:00 – 23:00
• New York: 19:00 – 04:00

The best time to trade USD/CAD is from 19:00 to 23:00 (during the London and New York session overlap). This period features high trading volume and key economic news from the U.S., resulting in clearer price movements—making it ideal for timing entries and exits.

Key Takeaways for Traders

• USD/CAD and oil prices are closely linked—an essential connection no trader should ignore.
• The USD/CAD pair has a direct relationship with crude oil prices, one of Canada’s key exports.
• Analyzing oil price trends plays a critical role in forecasting USD/CAD movements.
• Traders who can interpret oil-related news, capital flows, and technical signals together will gain a sharper edge in the 24-hour Forex market.
• Don’t treat this pair as just a price chart. Global energy fundamentals can shift market dynamics in a matter of hours.
• To trade USD/CAD effectively, combine short-term strategy with a long-term view of the global energy economy.

Note: This article is intended for preliminary educational purposes only and is not intended to provide investment guidance. Investors should conduct further research before making investment decisions.