Why Germany's Record Trade Surplus Is Lifting the Euro and Stalling the Loonie

Opposing Forces on the Canadian Dollar

The loonie faced a tug-of-war:

• Oil's earlier surge on U.S.-Iran tensions — In early May, oil prices jumped sharply after President Trump declared Iran's reply to a US peace proposal unacceptable, with the Strait of Hormuz largely closed. Brent surged past $107 and WTI broke above $100 . This normally supports the loonie, as Canada is a major oil exporter.

• Crude's pullback from $75 and the 5% jump — By late June/early July, oil had pulled back sharply from war-driven peaks, with Brent settling below $70 at one point as ceasefire talks progressed . But on July 7–8, oil surged again: Brent jumped nearly 5.5% to above $75/barrel after the US revoked Iran's oil sanctions waiver and struck three commercial vessels near the Strait of Hormuz . Trading Economics reported crude spiking as much as 7% to $75.6/barrel on renewed Middle East escalation fears .

The net effect on the loonie was mixed: the pullback in oil from war highs weakened CAD in late May/June, but the fresh geopolitical spike in early July gave CAD a brief reprieve. Overall, EUR/CAD stayed elevated near 1.62 — suggesting the euro's fundamental support from German trade data outweighed the CAD-supportive but short-lived oil spikes.

BoC Rate Outlook and Loonie Forecasts for 2026

• BoC policy: The Bank of Canada has held its overnight rate at 2.25% since early 2026, maintaining a steady pause through consecutive meetings. No further rate cuts are expected . Scotiabank Economics forecasts the BoC will stay on hold through H1 2026, then potentially deliver 50 bps of tightening in H2 2026 — the next move being a hike .

• GDP and inflation: The BoC's January 2026 Monetary Policy Report projects modest GDP growth of 1.1% in 2026, with inflation near 2.5% early in the year before easing back toward target .

• Key risk: Trade policy with the US is seen as the main downside risk. The BoC's April outlook assumes tariffs remain in place and oil declines to $75/barrel by mid-2027 .

• Loonie forecasts: BDC expects the Canadian dollar to trade between US$0.70–0.72 (i.e., roughly CAD 1.39–1.43 per USD) through early 2026 . TD Economics projects the USDCAD rate around 1.40–1.42 through Q4 2026, with the Canada-US rate differential narrowing modestly in CAD's favor . Against the euro, the current EUR/CAD level near 1.62 implies CAD remains on the weaker side of its recent range, reflecting both the euro's trade-driven strength and lingering CAD headwinds from oil volatility and trade uncertainty.