Canadian Dollar Weakens Despite Oil Price Surges and US‑Iran Tensions

The Canadian dollar has historically tracked global oil prices, strengthening when oil rises and falling when it drops. Recent months, however, show a sharp decoupling: even after the oil price spikes that followed Russia’s invasion of Ukraine in 2022 and the outbreak of the US‑Iran conflict, the loonie has not recovered.

A regression analysis that controls for the two‑year interest‑rate differential between Canada and the United States, Brent crude prices, and the VIX (a measure of market‑risk appetite) indicates that these factors alone cannot explain the current weakness. The model’s fitted line diverges from the actual exchange‑rate path, suggesting other influences are suppressing the Canadian dollar despite higher oil prices.

The chart referenced in the post shows the historic co‑movement of the loonie and oil, the recent divergence, and the regression‑based estimate of the dollar’s expected level under the stated variables.