Currencies June 3, 2026 03:10 PM

Canadian dollar slides to eight-week low as trade and Gulf tensions pressure markets

Loonie weakens on geopolitical flare-ups and U.S. tariff proposal while oil gains add cost pressures for Canadian firms

By Ajmal Hussain

The Canadian dollar fell to its weakest level in eight weeks amid heightened Middle East hostilities and U.S. trade actions. The loonie traded lower versus the U.S. dollar as oil prices rose and economic data showed a modest services expansion alongside a recent contraction in GDP growth. Market sentiment shifted toward the U.S. dollar and equities declined.

Canadian dollar slides to eight-week low as trade and Gulf tensions pressure markets

Key Points

  • Canadian dollar dropped to 1.3899 per U.S. dollar, 0.4% lower, the weakest since April 7.
  • Iranian attacks on Kuwait and U.S. strikes near the Strait of Hormuz heightened geopolitical risk; diplomatic progress remained limited.
  • U.S. proposal for tariffs up to 12.5% on imports from 60 economies, including Canada, added trade-policy uncertainty; affected trading partners rejected the forced-labor claims.

The Canadian dollar weakened on Wednesday, sliding to its lowest point in eight weeks as a mix of trade friction and Middle East conflict soured investor risk appetite.

The currency was trading 0.4% lower at 1.3899 per U.S. dollar, equivalent to 71.95 U.S. cents, marking its weakest reading since April 7.

Geopolitical developments in the Gulf region added to market unease. Iranian attacks on Kuwait damaged the country’s airport and injured dozens of people. In response to rising tensions near major shipping lanes, U.S. forces carried out strikes close to the Strait of Hormuz. Observers noted limited diplomatic progress toward resolving the conflict.

Trade policy news also weighed on the loonie. The Trump administration proposed new tariffs of up to 12.5% on imports from 60 economies, among them Canada. The administration said those countries had failed to prevent trade in goods made with forced labor, a characterization that U.S. trading partners rejected.

Against a broader basket of currencies, the U.S. dollar strengthened as Wall Street stocks moved lower. Commodity markets diverged, with oil - a significant Canadian export - trading 2.6% higher at $96.14 a barrel, a move that can both support and complicate Canada’s economic outlook.

On the data front, Canada’s economy contracted at an annualized rate of 0.1% in the first quarter, according to figures released on Friday, following a downwardly revised 1% contraction in the prior quarter. Separately, S&P Global’s Canada services PMI, released on Wednesday, indicated the services sector expanded at a modest pace in May. The PMI report noted that the Middle East conflict had increased economic uncertainty, while higher fuel prices contributed to the fastest rise in operating costs seen in four years.


Market context

  • The Canadian dollar’s move reflects risk-off positioning amid geopolitical and trade-related headlines.
  • Higher oil prices support export revenues but also raise input costs for businesses already reporting faster rises in operating expenses.
  • Recent GDP and PMI releases show a mixed picture: a shallow GDP contraction paired with modest services expansion.

Risks

  • Escalation in Middle East hostilities could further erode investor risk appetite, impacting currencies and equities.
  • Potential imposition of new U.S. tariffs could disrupt trade flows and weigh on export-reliant sectors in affected economies.
  • Rising oil and fuel costs are lifting operating expenses for businesses, increasing inflationary and margin pressures in the energy-exposed and services sectors.

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