The Canadian Dollar (CAD) declined against the US Dollar (USD) on Monday, with USD/CAD trading around 1.3834, up nearly 0.27% on the day, as renewed tensions in the Middle East prompted a flight to safety that lifted the Greenback [1]. Iran’s semi-official Tasnim News Agency reported that Tehran has suspended negotiations with Washington over Israel’s military operations in Lebanon against Hezbollah and has threatened to fully block the Strait of Hormuz [1]. Iran’s Foreign Ministry spokesperson Esmaeil Baghaei stated that a ceasefire in Lebanon is essential for any agreement to end the war with the United States [1].
US President Donald Trump attempted to calm markets, stating on Truth Social that he had a “very good call” with Hezbollah representatives and that “all shooting will stop.” Following these comments, the US Dollar Index (DXY) trimmed part of its intraday gains, trading around 99.16 after reaching a daily high near 99.39, but remained up nearly 0.25% on the day [1].
The Canadian Dollar was further pressured by weak domestic economic data. Bank of Canada (BoC) Senior Deputy Governor Carolyn Rogers noted that “two quarters of annualized GDP decline meets one recession definition,” but cautioned against overemphasizing any single indicator [1]. Slowing economic growth in Canada could reduce pressure on the BoC to raise interest rates, even as rising oil prices worsen the inflation outlook [1].
In contrast, US inflation remains well above the Federal Reserve’s (Fed) 2% target, and economic activity continues to be robust, reinforcing expectations that the Fed could keep interest rates higher for longer or potentially raise rates again if inflation pressures persist [1]. On the data front, the US ISM Manufacturing PMI rose to 54 in May from 52.7 in April, its highest since May 2022, while Canada’s S&P Global Manufacturing PMI eased to 52.9 from 53.3 [1].
Looking ahead, markets are focused on upcoming labor market data from both the US and Canada, due on Friday, for further guidance on the interest-rate outlook [1].
CONCLUSION
Geopolitical tensions and diverging economic data have weighed on the Canadian Dollar, while the US Dollar remains supported by safe-haven flows and resilient domestic indicators. Market participants are now awaiting labor market data from both countries for further direction on monetary policy and currency movements.