Canadian Dollar Close to December-Lows

The Canadian dollar traded around 1.39 per USD, hovering near its lowest levels since December 2025, as traders assessed the latest developments in the Middle East. US President Trump pledged more aggressive action against Iran but offered no concrete plans to reopen the Strait of Hormuz. Crude prices remain close to 2022 highs, fuelling inflation concerns and boosting the US dollar. The loonie weakened by about 2% in March, marking its steepest monthly decline since December 2024. Last month, the Bank of Canada held its benchmark interest rate steady at 2.25%, noting it was too soon to assess the economic impact of the conflict but money markets are pricing in around 41bps of tightening this year.

The Canadian dollar rebounded to 1.39 per US dollar as a pullback in the greenback and hopes for a Middle East ceasefire offset signs of cooling domestic activity. The loonie found relief after touching its lowest levels since December as the US dollar index dropped on signals that the US aims to restore vessel flows and end the conflict with Iran within weeks. President Donald Trump indicated that a ceasefire was requested although he noted the US will only agree once the Strait of Hormuz is secure and fully operational which helped pull oil prices back from recent highs. However, the loonie faced headwinds as Canadian manufacturing performance stagnated in March with the sector index falling to 50.0 amid higher prices and tariff concerns. Consequently the Canadian dollar remains sensitive to shifting geopolitical tensions and the probability of the Federal Reserve keeping interest rates unchanged through the year.

The Canadian dollar weakened toward 1.395 per US dollar, the lowest since December as a broadly stronger greenback and safe haven demand overshadowed a third consecutive month of domestic economic expansion. While a flash estimate showed the Canadian economy grew 0.2% in February behind a recovery in mining and financial services, the loonie struggled to capitalize on the growth as the US dollar strengthened amid persistent geopolitical instability. Fears of a prolonged conflict and the closure of the Strait of Hormuz continue to underpin the greenback's status as the primary reserve currency despite a recent pullback in US Treasury yields. Federal Reserve Chair Jerome Powell suggested that inflation expectations remain anchored in the long term though the potential for a larger US defense budget has led markets to price out near term rate cuts. Consequently the loonie remains vulnerable to the diverging fiscal outlooks and the risk of a sustained supply shock in the Persian Gulf.