The Canadian dollar strengthened against the U.S. dollar on Monday, reaching its highest level in roughly five weeks as investor sentiment improved amid hopes for a diplomatic easing of tensions in the Middle East.

The currency traded near 1.3640 against the U.S. dollar after touching an intraday high of 1.3636, supported by reduced demand for traditional safe-haven assets such as the U.S. dollar.

Market analysts pointed to optimism surrounding potential negotiations involving the United States and Iran as a factor weighing on the greenback. Although geopolitical concerns remained elevated, broader market sentiment stayed relatively stable, with North American equities holding onto recent gains.

Oil prices also moved sharply higher after shipping disruptions near the Strait of Hormuz continued to affect global supply concerns. U.S. crude oil futures settled close to $90 per barrel, providing additional support for the Canadian currency given Canada’s role as a major energy exporter.

Meanwhile, new inflation figures showed Canada’s annual inflation rate rose to 2.4% in March, up from 1.8% in February. The increase was largely tied to higher gasoline prices driven by rising crude oil costs. However, the reading came in below analyst expectations of 2.6%.

Economists noted that core inflation indicators remained relatively contained despite the spike in energy prices, reinforcing expectations that the Bank of Canada may keep interest rates unchanged through 2026.

In bond markets, Canadian government bond yields edged slightly lower, even as many U.S. Treasury yields moved higher during the session. Kitco