Canadian Dollar to Benefit from Record Oil Trade Surplus Forecasts National Bank

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CAD to benefit further from structural energy advantage.

The Canadian dollar is emerging as one of the key currency winners from the Middle East conflict, with analysts saying a structural energy advantage could allow it to continue outperforming.

“The loonie has held up well since the start of the Iran conflict, ranking as the best-performing major currency in Bloomberg’s grouping and one of only two to have appreciated against the U.S. dollar over that period,” a new report from National Bank Financial (NBF) says.

NBF is a subsidiary of National Bank of Canada, one of the country’s biggest banks. In a monthly currency market update, analysts say the explanation for recent CAD outperformance lies in Canada’s terms of trade.

Higher oil prices triggered by the Iran conflict boost revenues for energy exporters, strengthening the external balance and supporting the currency. Canada stands out among advanced economies in this regard.

“Among the IMF’s main reserve-currency economies, Canada stands out as the country with the largest net energy balance relative to the size of its economy, equivalent to a hefty 4.4% of nominal GDP,” says the research.

This energy surplus provides a natural hedge against geopolitical shocks that typically weaken energy-importing economies.

NBF also notes that Canada’s oil production continues to expand, amplifying the positive impact of higher prices. “Crude oil production is expected to reach 5.8 mb/d in 2026, up 18% from the 4.9 mb/d recorded in 2022.”

For currency markets, that combination of rising output and elevated prices reinforces the case for Canadian dollar strength while the conflict persists.

But the outlook is not solely tied to the war; NBF says CAD could continue to gain even if geopolitical tensions ease later in the year.

The bank says the recent rebound in the U.S. dollar triggered by the conflict is likely to prove temporary, particularly if the Middle East shock fades and global macro trends reassert themselves.

“The U.S. dollar has rebounded on the latest geopolitical shock, but assuming the armed conflict in the Middle East tapers down, softer inflation, a weaker labour market, a Fed biased toward cuts rather than hikes… suggest this risk-off rally is more likely to prove temporary than to evolve into the kind of broad-based surge experienced in 2022.”

If that scenario plays out, the Canadian dollar could benefit on two fronts: structurally stronger energy revenues and a softer U.S. dollar backdrop.

“We continue to see scope for further CAD appreciation in 2026,” says NBF.

For Canada’s domestic economy, the implications are broadly supportive.

Higher oil prices lift government revenues, improve trade balances and support investment in the country’s large energy sector.

This contrasts sharply with the situation facing many other developed economies, particularly in Europe and parts of Asia, where higher fuel costs act as a drag on growth.

USD/CAD is forecast at 1.37 by mid-year where it peaks before retreating sharply to 1.31 by the end of the year.

The GBP/CAD forecast shows a move to 1.82 by mid-year ahead of declines to 1.78 by year-end.

For EUR/CAD the profile is 1.58 and 1.57 for these two points in the future.