Canadian dollar dips as oil tensions weigh on loonie ahead of Fed meeting

The Canadian dollar weakened further on Tuesday, trading near C$1.3910 per U.S. dollar—just below its 12-day low of C$1.3929—as rising oil prices and geopolitical tensions intensified fears of further U.S. interest-rate hikes ahead of the Federal Reserve’s policy decision on Wednesday. The loonie’s decline reflected broader market risk aversion, driven by escalating tensions in the Middle East and lingering uncertainty over global economic growth. While Canada is a key oil exporter, the surge in Brent crude—climbing above $107 a barrel—further complicated the currency’s outlook by raising expectations of tighter U.S. monetary policy. The U.S. 10-year Treasury yield also rose above 5%, narrowing the dollar’s yield advantage over the Canadian currency. August inflation data showed Canada’s annual price pressures remained elevated but stable, failing to signal a sustained acceleration in underlying inflation. The Bank of Canada’s next move will be closely watched, as traders assess whether the loonie’s decline signals a broader shift in monetary policy expectations.