E38 – On USD/CAD and the FX Market

The Canadian dollar’s historical correlation with oil prices has fundamentally decoupled, shifting from a reliable indicator to a detached relationship driven by supply-side shocks and structural changes in North American energy production. Shaun Osborne, Chief FX Strategist at Scotiabank, notes that while the Canadian dollar remains a resource-linked currency, current market directionality is primarily dictated by widening US-Canada interest rate differentials and the aggressive repricing of Federal Reserve policy. Despite geopolitical tensions and trade uncertainties, global foreign exchange volatility remains suppressed due to increased economic synchronization across major economies. However, the US dollar’s prolonged bull run and elevated valuation relative to long-term averages suggest potential vulnerability to fiscal imbalances and institutional instability. While the dollar maintains its status as the dominant global reserve currency, the landscape is evolving toward a more regionalized, tripolar financial system over the coming decades.