Global Tensions Are Lifting the U.S. Dollar
Over the weekend, the U.S. deepened its involvement in the Israel-Iran conflict, launching airstrikes on nuclear sites in Iran. That move turned up the geopolitical heat and sent markets into risk-off mode. One of the big concerns? Iran’s parliament is backing the idea of blocking the Strait of Hormuz—a vital artery for the world’s oil supply.
In response, investors have started to move toward safety, and the U.S. dollar has been the main beneficiary. It’s now trading at its highest level in a month, with USD/CAD climbing to around 1.38 and holding its gains for five straight sessions
Oil Is Up, But the Loonie’s Not Following
Normally, rising oil prices give the Canadian dollar a bit of a boost. But not this time. Even with crude climbing on supply fears, the loonie has slipped by about half a cent. The usual oil-loonie connection is being drowned out by global jitters and safe-haven demand.
That’s bad timing for the CAD, especially since global traders seem far more interested in minimizing risk than in chasing commodities at the moment.
Canadian Economic Data Isn’t Helping Either
On the home front, things aren’t looking too sharp. Canada’s latest retail sales numbers came in weaker than expected, showing a clear drop in consumer spending (when was the last time you went to a mall or splurged at a high-end restaurant? Exactly!). That adds to concerns that the Canadian economy is softening—and gives the Bank of Canada more reason to consider additional rate cuts, making the Canadian dollar look less attractive as an investment.
All eyes will now be on this week’s inflation report (Tuesday) and GDP numbers (Friday). If either disappoints, it could drive USD/CAD even higher.
Other Currencies Are Feeling the Pressure Too
The loonie isn’t alone in its struggle. The euro and pound are holding steady but not impressing anyone. The Japanese yen, usually another safe haven, has actually dropped in value—likely due to Japan’s exposure to rising oil prices. And risk-sensitive currencies like the Aussie and Kiwi dollars have taken even bigger hits, each down over 1% from last week.
What’s Next for USD/CAD?
With Canadian inflation data expected Tuesday and GDP results scheduled for Friday—and more U.S. data on the way, including GDP on Thursday, inflation metrics on Friday, and Powell’s testimony midweek—there’s no shortage of market-moving headlines. Meanwhile, traders are watching the Middle East situation closely for signs of further escalation.
As long as tensions stay high and Canadian economic signals remain soft, it’s hard to see the Canadian dollar catching a break. Right now, the path of least resistance looks like more upside for USD/CAD.
The Canadian dollar is currently trading at 1.3748 CAD against the US Dollar.
