Loonie Takes a Hit as Oil Price Surge Fuels Rate Worries

The Canadian dollar weakened on Tuesday as oil prices surged, raising inflation concerns and increasing expectations for higher interest rates in the United States.

Oil prices climbed above $107 a barrel due to escalating Middle East tensions, which typically supports the loonie. However, this time around, the oil shock has also contributed to a rise in U.S. Treasury yields, offsetting the usual boost from higher crude prices.

The Canadian currency was trading at C$1.3910 per U.S. dollar on Tuesday, near 71.9 U.S. cents, after reaching a 12-day low of C$1.3929 on Monday. The loonie remains vulnerable ahead of the Federal Reserve's policy decision on Wednesday.