Canadian Dollar weakens as tensions rise in the Middle East

USD/CAD Strengthens Amid Geopolitical Tensions

During Tuesday's Asian session, the USD/CAD exchange rate climbed near 1.3750, buoyed by ongoing uncertainty and the escalating conflict involving the US, Israel, and Iran. These developments have continued to lend support to the US Dollar (USD) over the Canadian Dollar (CAD). Later in the day, markets await the release of the preliminary US S&P Global Purchasing Managers Index (PMI) for March.

Geopolitical Developments Impacting Markets

On Monday evening, US President Trump announced a five-day delay in planned military action targeting Iranian energy assets. According to CNN, Trump also mentioned that the US and Iran had reached 15 points of consensus following recent discussions. However, Iranian authorities refuted claims of any negotiations with the US after these statements.

Mohsen Rezaei, a top military adviser to Iran’s Supreme Leader Mojtaba Khamenei, declared that hostilities would persist until Iran is fully compensated for its losses. The prospect of an extended conflict in the Middle East is likely to bolster demand for safe-haven currencies like the US Dollar in the short term.

Oil Prices and the Canadian Dollar

Crude oil prices surged as traders responded to Iran’s rejection of peace talks with the US. Since Canada is a significant exporter of oil, rising crude prices typically provide support for the Canadian Dollar.

Central Bank Policies and Economic Outlook

Last week, the US Federal Reserve maintained its benchmark interest rates at 3.50%–3.75%, voicing concerns about the inflationary impact of higher oil prices. Similarly, the Bank of Canada kept its key overnight rate steady at 2.25% during its March meeting, but cautioned that the economic outlook remains highly unpredictable, with the Iran conflict amplifying risks to the global economy.