Canadian Dollar Weakens Amid Rising Middle East Tensions

The Canadian dollar weakened against the U.S. dollar on Thursday as fading optimism for a quick end to Middle East hostilities boosted the greenback's safe-haven appeal and domestic data showed a widening trade gap. The USD/CAD pair was trading 0.4% lower at 1.3925, within a range of 1.3870 to 1.3933, after having touched a near four-month low of 1.3966 earlier in the week. Market sentiment soured following remarks from United States President Donald Trump, who vowed more aggressive strikes on Iran, a move that pushed energy prices higher. West Texas Oil futures climbed 8.7% to $108.79 per barrel, while Brent Crude Oil rose 4.8% to $106.03. > CAD is weakening in line with broad USD strength after Trump's remarks, which indicate that the war can be extended and there is room for further escalation. Jayati Bharadwaj, a global FX strategist at TORONTO-DOMINION BANK, explained that while Canada is a net oil exporter, the flight to safety in the U.S. dollar is currently the dominant market force. Adding to the loonie's pressure, the Canadian trade deficit widened to C$5.74 billion ($4.12 billion) in February from a revised C$4.18 billion in the previous month, far exceeding the projected C$2.25 billion, as a surge in the purchase of Gold from abroad drove imports to a record high. > Net trade will likely be a negative for Q1 GDP due to the surge in imports. Andrew Grantham, a senior economist at CIBC Capital Markets, noted that the import spike likely indicates restocking following previous inventory drawdowns. In the bond market, Canadian 10-year yields fell 4.8 basis points to 3.455%.