The Canadian dollar weakened on Wednesday, sliding to its lowest point in eight weeks as a mix of trade friction and Middle East conflict soured investor risk appetite.
The currency was trading 0.4% lower at 1.3899 per U.S. dollar, equivalent to 71.95 U.S. cents, marking its weakest reading since April 7.
Geopolitical developments in the Gulf region added to market unease. Iranian attacks on Kuwait damaged the country’s airport and injured dozens of people. In response to rising tensions near major shipping lanes, U.S. forces carried out strikes close to the Strait of Hormuz. Observers noted limited diplomatic progress toward resolving the conflict.
Trade policy news also weighed on the loonie. The Trump administration proposed new tariffs of up to 12.5% on imports from 60 economies, among them Canada. The administration said those countries had failed to prevent trade in goods made with forced labor, a characterization that U.S. trading partners rejected.
Against a broader basket of currencies, the U.S. dollar strengthened as Wall Street stocks moved lower. Commodity markets diverged, with oil - a significant Canadian export - trading 2.6% higher at $96.14 a barrel, a move that can both support and complicate Canada’s economic outlook.
On the data front, Canada’s economy contracted at an annualized rate of 0.1% in the first quarter, according to figures released on Friday, following a downwardly revised 1% contraction in the prior quarter. Separately, S&P Global’s Canada services PMI, released on Wednesday, indicated the services sector expanded at a modest pace in May. The PMI report noted that the Middle East conflict had increased economic uncertainty, while higher fuel prices contributed to the fastest rise in operating costs seen in four years.
Market context
- The Canadian dollar’s move reflects risk-off positioning amid geopolitical and trade-related headlines.
- Higher oil prices support export revenues but also raise input costs for businesses already reporting faster rises in operating expenses.
- Recent GDP and PMI releases show a mixed picture: a shallow GDP contraction paired with modest services expansion.