The Canadian dollar climbed to its strongest level in weeks, riding a wave of rising oil prices and growing bets on a Bank of Canada rate hike. The loonie gained nearly 2% during October, according to National Bank of Canada data. On October 23, it touched C$1.3969 per US dollar, its best intraday level since September 16, before settling near C$1.40, or about US$0.7143.
The loonie surged nearly 2% in October, touching C$1.3969 before settling near C$1.40 against the US dollar.
That move marked a seventh straight daily gain, potentially the longest winning streak since March 2022, and a weekly advance of 1%, the strongest since April.
Oil prices played a big role in the rally. Brent crude traded at US$112.57 a barrel, while West Texas Intermediate stood at US$99.96, both reflecting fears over supply disruptions tied to the Middle East conflict and attacks on energy infrastructure. US crude futures later settled 3.8% higher at US$103.27.
Since Canada is a major energy exporter, higher oil prices often lift its currency. Still, National Bank called the relationship “modest” this time, noting the loonie wasn't tracking oil as tightly as usual.
Expectations for a Bank of Canada rate hike added fuel to the rally. Markets had priced in roughly an 80% chance of a 25-basis-point increase ahead of the October 28 decision, a view reinforced by hawkish comments from Governor Tiff Macklem and a Reuters poll showing most economists expected the move.
The Bank delivered, raising its policy rate to 2.50%, the first hike since July 2023, pointing to persistent inflation and higher energy costs.
Canadian inflation has hovered near 3% since April, with the Bank projecting it could reach 3.5% by late 2026. Stronger retail sales data also supported the case for tightening, with officials describing the economy as resilient.
Rising fuel and import costs are adding pressure on businesses, a theme echoed in September's 3.1% annual inflation reading. Much like the Bank of Canada, central banks such as the South African Reserve Bank use interest rate policy and market interventions to manage currency strength and inflation expectations.
A softer US dollar helped extend the loonie's gains, as traders weighed diverging central bank paths. For commodity-exporting economies, including several in Africa, the combination of firmer oil prices and shifting rate expectations could influence currency and trade dynamics in the months ahead.
