The Canadian dollar strengthened slightly against its U.S. counterpart on Tuesday, as improved risk appetite on rising hopes the Middle East war would soon end offset a pullback in oil prices.
The loonie was trading 0.1% higher at 1.3568 per U.S. dollar, or 73.70 U.S. cents, after moving in a range of 1.3543 to 1.3601. On Monday, Canada’s currency, which has fared best of the Group of 10 currencies since the conflict in the Middle East began, touched a near one-month high at 1.3523.
The United States and Israel pounded Iran on Tuesday with what both the Pentagon and Iranians on the ground described as the most intense airstrikes of the conflict, despite global markets betting that U.S. President Donald Trump will call off his war soon.
“While markets are hopeful that the conflict will end soon ... there is no obvious off ramp for the conflict at this point,” said Shaun Osborne, chief currency strategist at Scotiabank. “The situation remains fluid but while oil prices remain elevated, the CAD should remain firm.”
The price of oil, one of Canada’s major exports, tumbled 10% to $85.28 a barrel as expectations decreased of prolonged disruptions to oil supply, but the price was holding well above the levels in place before the conflict began less than two weeks ago.
The U.S. dollar gave back some recent gains against a basket of major currencies.
Canadian trade data for January is due on Thursday and the February employment report is set for the end of the week, which could guide expectations for next week’s Bank of Canada interest rate decision.
Investors have moved in recent days to price in an interest rate hike this year after the spike in oil prices raised concerns globally about the outlook for inflation.
Canadian bond yields were mixed across the curve. The 10-year was up 2.1 basis points at 3.386%, while the gap between it and the U.S. equivalent narrowed by 4 basis points to 72.9 basis points in favor of the U.S. note.