The Canadian dollar continues to weaken as the war in Iran drags on with no immediate end in sight.
The Loonie, as the Canadian currency is known, fell by 2% during March as oil prices reached $110 U.S. per barrel due to the war in Iran.
Some analysts have expressed surprise at the Canadian dollar’s slide, as they expected high oil prices to be a tailwind for the currency.
But many analysts say the reasons for the Canadian dollar’s struggles include a weaker outlook for growth and lower expectations around interest rates compared with Europe and other nations.
Financial markets are currently pricing in one 25-basis-point rate hike in Canada this year but are fully pricing in two rate hikes in Europe.
In the early days of the Iran war, the Loonie strengthened against the U.S. dollar on spiking oil prices.
But that trade was reversed as the war dragged on and investors fled to the safety of the U.S. dollar, boosting the greenback by 2.4% last month.
The Canadian dollar is now trading at 72 cents U.S. after topping 73.7 cents U.S. in March.
Many analysts see more difficulties ahead for the Canadian dollar due to a weak labour market and ongoing trade uncertainty vis-à-vis the U.S.
Recent economic data paints a picture of a weakening Canadian economy after a year of U.S. tariffs and geopolitical upheaval.
Analysts at Wells Fargo (WFC) are calling for the Loonie to remain around 72 cents U.S. during the current second quarter of 2026.
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