The Canadian dollar weakened against its U.S. counterpart on Monday as increased risk of a direct confrontation between the U.S. and Iran in the Strait of Hormuz unnerved investors.
The loonie was trading 0.2 per cent lower at 1.3615 per U.S. dollar, or 73.45 U.S. cents, after moving in a range of 1.3582 to 1.3619. On Friday, the currency touched its strongest intraday level since March 10 at 1.3548.
The U.S. military said two U.S. Navy guided-missile destroyers had entered the Gulf to break an Iranian blockade and that two U.S. merchant ships had transited the strait, after Iran said it had prevented a U.S. warship from entering the Gulf.
“The trend remains the same this week with negative headlines creating USD strength while positive developments boost the loonie,” Darren Richardson, chief operating officer at Vantry Capital, said in a note.
The safe-haven U.S. dollar rose against a basket of major currencies and the price of oil, one of Canada’s major exports, was trading sharply higher. Brent futures were up 5.6 per cent to above $114 per barrel, while U.S. West Texas Intermediate crude was 3.6% higher at more than $105.
Last Wednesday, the Bank of Canada said it might have to respond with consecutive interest rate hikes if oil prices stayed high and began pushing up inflation.
Investors are leaning toward a BoC rate hike by July and are pricing in at least two increases in total by the end of 2026.
Speculators have cut their bearish bets on the Canadian dollar, data from the U.S. Commodity Futures Trading Commission showed on Friday. Non-commercial net-short positions stood at 38,476 contracts as of April 28, down from 58,834 contracts in the prior week.
Canadian bond yields moved higher across the curve, tracking moves in U.S. Treasuries. The 10-year was up 9.7 basis points at 3.625 per cent, after earlier touching its highest level since March 27 at 3.635 per cent.
Reporting by Fergal Smith; Editing by Paul Simao
