Canadian dollar hits four-month low on growth concerns

The Canadian Dollar / U.S. Dollar exchange rate retreated to its lowest level in nearly four months on Monday as the persistent conflict in the Middle East weighed on investor sentiment. Market participants are increasingly concerned that the resulting drag on global economic growth will overshadow the inflationary impact of surging energy prices. The loonie fell 0.2% to 1.3925 per greenback, having earlier touched an intraday low of 1.3944, its weakest point since early December. Geopolitical tensions intensified after the United States issued a warning that energy plants and oil wells in Iran could face destruction if the Strait of Hormuz is not kept open. This warning followed a series of missile attacks launched by Tehran against Israel, alongside the rejection of U.S.-led peace initiatives. > The longer that the situation goes on, its not growth-positive. Darcy Briggs, a portfolio manager at Franklin Templeton Canada, suggested that the economic fallout from energy shocks typically manifests in broader data with a delay. While the currency struggled, WTI Crude Oil Futures surged 3.9% to $103.49 per barrel. Oil is a primary export for the Canadian economy, yet its price gains were offset by a broadly stronger U.S. dollar. Market attention is shifting toward domestic economic indicators, with Canadian GDP data for January scheduled for release on Tuesday. Analysts anticipate a flat reading, which could provide clarity on the Bank of Canada's next moves. The central bank recently held its benchmark interest rate at 2.25%, noting that it is premature to determine the full economic consequences of the regional war. > Generally, central banks look through these price shocks ... and I think theyll be on hold for the next few meetings to weigh the consequence of all this and what it really means for the Canadian economy. Expectations for monetary tightening have cooled significantly. Money markets are currently pricing in 50 basis points of rate hikes for the remainder of the year, a decrease from the 70 basis points anticipated just days ago. Reflecting this shift, Canadian bond yields declined across the curve, with the 10-year yield dropping 8.8 basis points to 3.493%, moving away from the two-year high of 3.643% reached last week.