The Canadian dollar strengthened to 1.37 per USD in April, its highest level in a month, supported by elevated oil prices and expectations of a hawkish Bank of Canada. Although there were brief signs of easing tensions between the US and Iran, energy exports from the Persian Gulf remained under threat from Iranian forces, and the US Navy’s seizure of an Iranian cargo ship effectively halted tanker movements and trade through the Strait of Hormuz.
The resulting surge in energy prices boosted foreign exchange inflows into Canada’s financial system, as the country is a major energy exporter, lending support to the loonie. At the same time, higher energy costs pushed inflation higher, prompting the BoC to signal its determination to counter the risk that elevated energy prices could entrench inflation, which further supported the currency.
Against this backdrop, the Canadian dollar has outperformed its G10 peers since March, even as global investors increased allocations to the US dollar on the back of its safe-haven appeal.
