The Canadian dollar weakened to a two-month low against its U.S. counterpart on Wednesday as oil prices fell on hopes of a ceasefire in the Middle East conflict and investors weighed recent signs of domestic economic weakness.
The loonie was trading 0.3% lower at 1.3809 per U.S. dollar, or 72.42 U.S. cents, marking its weakest intraday level since January 22.
“The loonie’s descent to a two-month low suggests that internal economic deceleration is now weighing more heavily on the currency than the support typically provided by favorable terms of trade in energy,” said Kevin Ford, FX & macro strategist at Convera.
“Following a cautious tone from the Bank of Canada last week, investors have turned the focus back to a sluggish labor market and economic macro figures that have missed projections.”
Canada’s economy has been disrupted by hefty U.S. tariffs on critical sectors, such as autos, steel and aluminum. Exports were down 14.6% year-over-year in January and employment declined by 84,000 in February.
“Further pressure stems from geopolitical and trade-related uncertainties. While elevated energy prices are currently the primary pillar of support for the CAD, this makes the currency highly vulnerable to any de-escalation in Middle East tensions,” Ford said.
Reports that the United States had sent Iran a 15-point proposal aimed at ending the war helped push U.S. crude oil futures 2.8% lower to $89.77 a barrel. Oil is one of Canada’s major exports.
Last Wednesday, Bank of Canada Governor Tiff Macklem said it was too early to assess the effect of the war as the central bank left its benchmark interest rate on hold at 2.25%.
Canadian bond yields moved lower across the curve. The 10-year was down 8.6 basis points at 3.483%, extending its pullback from Monday’s near two-year high at 3.643%.