FX.co ★ Canadian Dollar Weakens to 2-Month Lows

The Canadian dollar weakened to 1.375 per US dollar, hitting a new two-month low as a resurgent greenback and persistent geopolitical tensions outweighed the brief support from recent diplomatic efforts. Hopes for de-escalation faded after Iran denied engaging in direct talks and reports surfaced that Saudi Arabia and the UAE might enter the conflict against Tehran. While oil prices continued to rise at a more moderate pace, ongoing attacks on US bases in the Gulf have sustained a high risk premium, complicating the inflation outlook for both the Bank of Canada and the Federal Reserve. This elevated uncertainty has led markets to fully price out any Federal Reserve rate cuts for 2026, as policymakers now signal a much more gradual easing cycle, limited to single 25-basis-point reductions in both 2026 and 2027. As a result, the loonie remains under heavy pressure, with the prospect of prolonged elevated US interest rates and regional instability continuing to strengthen the US dollar.