Rising oil prices are putting the relationship between crude and the loonie back in focus. As a major oil exporter, higher prices can improve energy revenues and strengthen the country’s trade position. But the effect on the currency isn’t always as straightforward as it might seem.
For households and businesses in Thunder Bay and across Northwestern Ontario, those movements affect far more than financial markets. Changes in the exchange rate can feed into the cost of imported goods, while higher oil prices can affect fuel, freight and other everyday business expenses.
Why Higher Oil Prices Matter to the Loonie
When crude becomes more valuable, domestic producers can earn more from exports. Since much of that oil is sold internationally in U.S. dollars, stronger energy revenues can improve the trade position and create conditions that are more favourable for the loonie.
But higher oil prices don’t automatically translate into a stronger currency. Crude is one influence among several, and its effect depends on what else is happening across the economy and financial markets.
Traders using a forex trading app often watch energy prices alongside these other signals rather than in isolation. If traders are concentrating on interest rate expectations or strength in the U.S. dollar, for example, the benefit from higher energy revenues may be less noticeable in the exchange rate.
The Relationship Isn’t as Predictable as It Once Was
Oil and the loonie have long been associated with each other, but the connection has become less consistent. Bank of Canada research has previously noted that the relationship changed significantly from around 2015, as investment in the energy sector shifted and interest rate differences with the United States became more influential.
So when crude moves higher, traders tend to look at the wider picture before assuming the loonie will follow.
This is partly why periods of rising crude oil prices don’t always produce an equivalent move in CAD. The underlying economic benefit may still be there, but other market forces can offset it.
Changing Export Routes Also Matter
Price isn’t the only part of the equation. How much oil producers can export, and where it can be sold, also affects the wider economic impact.
The Trans Mountain expansion, which entered service in 2024, increased capacity to move oil to the Pacific Coast and reach buyers beyond the traditional U.S. market. This reduces how dependent Canadian oil revenue is on a single buyer, which can change how strongly a price move abroad is felt at home.
That broader access means changes in global crude prices can feed through to export revenues differently than they did when producers had fewer routes available.
When stronger prices are accompanied by healthy export volumes, the trade position can benefit. That provides a more useful way of understanding oil’s influence on the loonie than simply expecting the currency to rise whenever crude does.
What This Means for the Loonie
For people in Northwestern Ontario, the most noticeable consequences may appear in household and business costs rather than directly through currency markets.
Oil is priced globally in U.S. dollars, and higher crude prices can feed into what people pay for gasoline and diesel. Businesses dependent on road freight, courier services or regular deliveries may therefore see transportation costs increase.
Distance makes those changes particularly relevant in this part of Ontario. Goods often have to travel considerable distances before reaching communities and businesses across the Northwest, so changes in fuel and freight costs can work their way through supply chains. Even companies that aren’t directly involved in the energy sector may therefore notice the effects through higher delivery or operating expenses.
The exchange rate adds another layer. If higher oil prices fail to produce much strength in the loonie, imported products can remain relatively expensive. That can affect everything from vehicle parts and machinery to electronics and other goods purchased from U.S. suppliers.
For local companies, particularly those managing cross-border supply chains, the combination is important. Rising fuel costs can make moving goods more expensive at the same time that a weaker loonie raises the cost of U.S.-priced supplies.
Wrap Up
The direction of the loonie ultimately depends on much more than the energy market. Interest rate expectations on both sides of the border can have a significant effect, as can economic data and periods when investors move toward the U.S. dollar during global uncertainty.
That doesn’t make oil irrelevant. Rather, it changes how its influence needs to be understood.
As crude oil prices rise, the country’s position as a major exporter means energy revenues remain an important part of the picture. But for households and businesses in Northwestern Ontario, watching the loonie alongside oil provides a clearer indication of how those changes could eventually show up in fuel prices, imported goods and operating costs.