We have recognized from the beginning that America has changed, and that we will not return to our old relationship. – Canadian Prime Minister Mark Carney
We have recognized from the beginning that America has changed, and that we will not return to our old relationship.
Prime Minister Mark Carney’s observation that Canada will not return to its “old relationship” with the United States is increasingly evident in financial markets. Brent crude, the global benchmark for oil prices, has risen roughly 66% this year, from about $61 per barrel in January to more than $100 today, yet the Canadian dollar has appreciated only about 0.4% against the euro. Based on the historical relationship between Brent and the Canadian dollar’s exchange rate against the euro, or CAD/EUR, from 2022 through 2024, this year’s oil move would have been associated with roughly a 2.2% appreciation in the Canadian dollar. In FX terms, that is a noteworthy difference: The Canadian dollar has delivered only about one-fifth of the appreciation that the recent oil relationship would have implied.
The euro provides a useful reference point because the U.S. dollar is itself part of the story. U.S. trade policy affects both the Canadian economy and the value of the U.S. dollar, which makes USD/CAD harder to interpret. Measuring the Canadian dollar against the euro removes some of that complication.
The weakening relationship between oil and the Canadian dollar coincides with a deterioration in Canada’s economic relationship with the United States. Roughly two-thirds of Canadian merchandise exports still go to its neighbor to the south, down from about three-quarters before the latest trade disruption, leaving Canada highly exposed even as exporters increasingly turn to other markets. Tariffs and uncertainty have already reduced exports, delayed investment and weakened the growth outlook, while Canada’s merchandise trade surplus with the U.S. narrowed materially in 2025. The dispute has intensified in recent days. Canada imposed retaliatory tariffs on roughly $20 billion of U.S. goods after bilateral negotiations broke down, while the United States responded with new restrictions on Canadian imports and federal procurement. Questions over the future of USMCA extend the uncertainty beyond the current tariff measures.
The trade dispute has also weighed on Canada’s growth outlook and contributed to a wider interest-rate gap with the United States. The Bank of Canada has described an economy operating with excess supply, weaker exports and subdued business investment, while the U.S.-Canada five-year yield differential has widened to roughly 1.1 percentage points. That rate gap reflects weaker expectations for Canadian growth and a different path for monetary policy, pressuring the currency.
Oil remains economically important for Canada, with oil and gas extraction accounting for roughly one-fifth of Canadian merchandise exports. Yet the latest surge in crude has produced little response in CAD/EUR.
The Canadian dollar is reflecting a different economic relationship with the United States than the one that prevailed during earlier oil cycles. The disruption to that relationship has been large enough to overwhelm the support that rising oil prices once provided. As long as trade uncertainty persists, even substantial gains in oil prices might have only a limited impact on the Canadian dollar.
Between the Lines is a weekly blog by DoubleLine Portfolio Managers Sam Garza, Joseph Mezyk and Quant Analysts Fei He, CFA and Sunyu Wang that breaks down topical macro and market issues. For questions or suggestions please e-mail us at betweenthelines@doubleline.com. The views and opinions expressed herein are those of the authors and do not necessarily reflect the views of DoubleLine Capital LP, its affiliates or employees.
