Canadian Dollar Falls Against The US Dollar As Markets Remain Cautious Over Iran Tensions

The Canadian Dollar (CAD) trades on the back foot against the US Dollar (USD) on Monday as renewed tensions in the Middle East lift the Greenback. At the time of writing, USD/CAD trades around 1.3834, up nearly 0.27% on the day.

Iran’s semi-official Tasnim News Agency reported that Tehran has suspended negotiations with Washington over Israel’s continued military operations in Lebanon against Hezbollah. The report also said Iran has vowed to fully block the Strait of Hormuz.

Earlier on Monday, Iran’s Foreign Ministry spokesperson Esmaeil Baghaei said “a ceasefire in Lebanon is an integral part of any agreement to end the war with the United States.”

Meanwhile, US President Donald Trump attempted to calm markets, saying on Truth Social that he had a “very good call” with Hezbollah representatives and that “all shooting will stop.”

Following Trump’s comments, the US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trims part of its intraday gains and trades around 99.16 after hitting a daily high near 99.39. The index remains up nearly 0.25% on the day.

Meanwhile, the Canadian Dollar is also weighed down by weak Gross Domestic Product (GDP) data released last week. Bank of Canada (BoC) Senior Deputy Governor Carolyn Rogers said “two quarters of annualized GDP decline meets one recession definition,” while noting that “I think we need to be careful not to put too much weight on any one indicator,” she told a parliamentary committee.

Slowing economic growth could ease pressure on the BoC to raise interest rates even as the inflation outlook deteriorates amid rising Oil prices.

At the same time, inflation in the United States remains well above the Federal Reserve’s (Fed) 2% target, while economic activity continues to hold up, reinforcing expectations that the Fed could keep interest rates higher for longer or even consider raising rates again if inflation pressures intensify.

On the data front, the ISM Manufacturing Purchasing Managers Index (PMI) climbed to 54.0 in May from 52.7 in the previous month, marking its highest reading since May 2022. However, Canada’s S&P Global Manufacturing PMI eased to 52.9 in May from 53.3 in April.

Looking ahead, attention now turns to labor market data from both the US and Canada due on Friday for fresh clues on the interest-rate outlook.