TORONTO — The Canadian dollar fell against its U.S. counterpart on Thursday as fading hopes for a quick resolution to the Middle East conflict revived demand for safe-haven currencies.
The Canadian dollar traded 0.4 percent lower at 1.3690 per U.S. dollar, or 73.05 U.S. cents, after moving in a range of 1.3616 to 1.3716, according to Reuters data.
The U.S. dollar rose against all G10 peers as the conflict between the United States, Israel, and Iran entered its sixth day.
"Markets remain hypersensitive to Middle East headlines, and the hope for a quick de-escalation increasingly looks like wishful thinking," said Kevin Ford, FX and macro strategist at Convera.
Oil supports the Canadian dollar versus other currencies
Canada is a major oil producer, which has helped the loonie fare better than some other G10 currencies in recent sessions.
The euro fell to 1.5799 Canadian dollars, its lowest level against the Canadian dollar since August.
U.S. crude jumped 8.5 percent to $81.01 per barrel as the war disrupted supplies and shipping in the Middle East, according to Reuters. Some major producers in the region have reduced output.
"Crude is grinding higher as doubts persist that naval escorts can fully safeguard flows through the Strait of Hormuz, leaving a durable risk premium embedded in price," Ford said.
Rate differential favors the greenback
Higher oil prices have raised concerns about fresh inflation pressures that could delay Federal Reserve interest rate cuts.
The Fed's benchmark rate stands at 3.75 percent, compared to 2.25 percent in Canada. CME FedWatch data shows markets expect the Fed to hold rates steady through at least June, with a 49 percent chance of no change even at the July meeting.
Friday's U.S. non-farm payrolls report could reinforce expectations for a firm Fed stance. Forecasts point to 59,000 new jobs in February, down from 130,000 in January.
The U.S. dollar index has advanced toward the 99 level since the conflict began, according to TradingEconomics.
Housing, trade weigh on Canada
Trade uncertainty and a soft housing market remain headwinds for Canada's economy.
Home sales in the Greater Toronto Area declined for a fifth straight month in February, and prices continued to fall.
Canadian bond yields rose across the curve, tracking moves in U.S. Treasuries. The 10-year yield climbed 5.5 basis points to 3.340 percent after earlier touching 3.352 percent, its highest since February 12.
Technical outlook
The loonie has strengthened from 22-year lows against the U.S. dollar reached earlier this year, supported by higher oil and gold prices.
USD/CAD has broken below its long-term uptrend from 2021 and is now consolidating between 1.35 and 1.38, stabilized by its 200-week moving average at 1.3638.
A weekly close below 1.35 would signal further Canadian dollar strength. A rebound above the 50-week moving average at 1.3830 could lead to a retest of 1.40.
