Canadian Dollar Strengthens After BoC Holds Rates

The Canadian dollar strengthened slightly to around 1.39 per US dollar after the Bank of Canada left its key interest rate unchanged at 2.25%, as widely expected. The central bank noted that uncertainty remains elevated amid escalating tensions in the Middle East and new US tariff proposals, but reiterated that it stands ready to act if needed and will not allow higher energy prices to feed sustained inflation. Investors largely expect the central bank to raise borrowing costs by 25bps in December. Still, the loonie remained near December lows, as the conflict with Iran continued to support demand for the US dollar as a safe haven.

The Canadian dollar weakened to 1.39 per USD in early June, its lowest level in eight weeks, as escalating trade tensions and renewed conflict in the Middle East boosted demand for the US dollar. Tensions in the Gulf intensified after Iranian attacks on Kuwait, while US strikes near the Strait of Hormuz and limited diplomatic progress clouded prospects for a resolution. The stronger greenback pressured major currencies broadly. Domestically, Canada’s economy contracted at an annualized rate of 0.1% in the first quarter, following a revised 1.0% contraction in the previous quarter, highlighting persistent economic weakness. Meanwhile, S&P Global data showed Canada’s services sector returned to modest growth in May. However, firms reported heightened uncertainty linked to Middle East tensions, while higher fuel prices contributed to the fastest increase in operating costs in four years.

The Canadian Dollar touched 1.39 against the USD, the lowest since April 2026. Over the past 4 weeks, US Dollar Canadian Dollar gained 1.78%, and in the last 12 months, it increased 1.38%.