08:20 AM EDT, 03/13/2026 (MT Newswires) -- Higher oil prices have helped the Canadian dollar (CAD or loonie) gain against the US dollar (USD), despite the escalating geopolitical and global economy risks, along with fading Federal Reserve rate cut prospects that are boosting the greenback, said Bank of Montreal (BMO).

From the close on Feb. 27, the Canadian dollar is up a net 0.4% by last Wednesday, noted the bank. The market's betting on a Bank of Canada's rate hike this year is also supporting the currency.

High oil prices and BoC rate hike hopes should both eventually fade as this year unfolds, causing some pullback in the loonie, stated BMO. But, with another 50 bps of Fed rate cuts coming later this year and the BoC on a long pause, the bank looks for the CAD to follow an appreciating trend to $1.33 (US$0.752), or around 3.5% over the year, by the end of 2026.

That is better than the rest of the pack, as the Canadian economy rebounds after being hit disproportionately by the United States trade policy, added the bank.

However, the key risk for the Canadian dollar remains U.S. trade policy, with the review of the USMCA scheduled by July 1. U.S. negotiations with Canada (called "challenging" by the U.S. Trade Representative) have started but they could be volatile given the past 14 months, according to BMO.

Although IEEPA-imposed tariffs were ruled illegal, they weren't that significant for Canada, but their removal does reduce tariff tail risk for Canada. They applied only to goods not compliant with the USMCA.

The sectoral tariffs are more meaningful for Canada, and a flurry of new ones along with other 'legal' duties, are about to unfold. The weight of U.S. trade policy on the loonie could mount quickly, the bank pointed out.