The Canadian Dollar (CAD) rebounded on Friday, reversing earlier losses against the US Dollar (USD) as the Greenback weakened, despite Canada reporting weaker-than-expected economic data. The USD/CAD currency pair, which had climbed to 1.3829 earlier in the American session, retreated to around 1.3780 at the time of writing, reflecting the CAD's recovery as the US Dollar softened [1].
The US Dollar's decline was attributed to reduced safe-haven demand amid hopes for a potential US-Iran deal. The US Dollar Index (DXY), which measures the USD against a basket of six major currencies, slipped below the 99.00 mark on Friday. This followed reports that US President Donald Trump was awaiting final approval on a proposed 60-day memorandum of understanding (MOU) with Iran, which would extend the current ceasefire and reopen the Strait of Hormuz. Trump stated, “the naval blockade will now be lifted” and mentioned a forthcoming meeting in the Situation Room to make a final determination on Iran. However, uncertainty remains as Iran has not confirmed or finalized the agreement, and Tehran maintains that shipping through the Strait of Hormuz is under its control, while the US insists the waterway must remain unrestricted [1].
On the economic front, Statistics Canada reported that the Canadian economy contracted by 0.1% on an annualized basis in the first quarter, marking the second consecutive quarterly decline and signaling a technical recession. This result missed expectations for 1.5% growth. On a monthly basis, GDP fell 0.1% in March after a 0.2% expansion in February, also missing market expectations for a flat reading [1].
Additionally, The Wall Street Journal reported that the Trump administration is expected to propose changes to the US-Mexico-Canada Agreement (USMCA), which would require half of a vehicle’s components to be made in the United States [1].
CONCLUSION
Despite Canada entering a technical recession with two consecutive quarters of GDP contraction, the Canadian Dollar managed to recover as the US Dollar weakened on geopolitical developments. Market sentiment remains cautious due to ongoing uncertainty around the US-Iran agreement and potential changes to the USMCA.