The Canadian dollar weakened toward 1.395 per US dollar, its lowest level since December, as broad US dollar strength and safe-haven flows overshadowed a third consecutive month of domestic economic growth. A flash estimate indicated that Canada’s economy expanded by 0.2% in February, supported by recoveries in the mining and financial services sectors. However, the loonie failed to benefit from this momentum as the US dollar advanced amid persistent geopolitical tensions.
Concerns over a prolonged conflict and the potential closure of the Strait of Hormuz continue to reinforce the greenback’s role as the world’s primary reserve currency, even after a recent pullback in US Treasury yields. Federal Reserve Chair Jerome Powell signaled that long-term inflation expectations remain well anchored, but the prospect of a larger US defense budget has led markets to scale back expectations for near-term rate cuts. As a result, the Canadian dollar remains exposed to diverging fiscal trajectories and the risk of a sustained supply shock in the Persian Gulf.
