The Canadian dollar weakened to 1.37 per USD in March, its lowest level in nearly two months, as escalating geopolitical tensions in the Middle East drove global investors toward the safe-haven US dollar. At the same time, markets weighed the diverging policy outlooks of the Bank of Canada and the Federal Reserve. Continued US and Israeli strikes targeting Iranian officials further undermined hopes for a diplomatic solution and accelerated the shift away from risk-sensitive currencies.
Even so, the Canadian dollar fell less sharply than most other G10 currencies, supported by the conflict-driven surge in energy prices, which boosts foreign exchange inflows to major energy exporters such as Canada. On the macroeconomic front, the Bank of Canada left its benchmark interest rate unchanged in its March meeting, as widely anticipated. The central bank also highlighted that the conflict poses risks to both growth and inflation, echoing the type of concerns expected from the Federal Reserve ahead of its upcoming policy decision.
