The Canadian dollar declined for the third consecutive day against its U.S. counterpart on Thursday as investors assessed ongoing trade restrictions in the Strait of Hormuz and data showing that rising oil prices pushed domestic producer prices higher last month.

The Canadian currency, known as the "loonie," was trading down 0.1% at 1.3680 CAD per U.S. dollar (equivalent to 73.10 U.S. cents), after moving within a range between 1.3661 and 1.3689.

Impact of Dollar Strength and Geopolitical Risks

Strategists at Scotiabank, Shaun Osborne and Eric Theoret, noted that domestic news and developments remain limited, pointing out that the Canadian dollar's intraday movements are primarily driven by the general trend of the U.S. dollar and overall market risk levels.

They added: "We expect limited gains for the U.S. dollar, with strong resistance in the 1.37 range, while support remains at 1.3625 before a potential decline toward 1.35 levels."

Meanwhile, the U.S. dollar index rose slightly against a basket of major currencies, supported by escalating tensions between the U.S. and Iran and stalled peace talks. This combination pushed oil prices higher and dampened investor risk appetite.

Oil Supports the Canadian Economy... With Inflationary Pressure

Prices for oilone of Canada's most vital exportsrose by 1.5% to reach $94.37 per barrel.

Data revealed that producer prices in Canada increased by 2.4% in March compared to February, driven by higher costs for energy, petroleum products, and chemicals following the closure of the Strait.

Additionally, increased sales in the petroleum products, coal, and transportation equipment sectors contributed to a 3.5% month-on-month rise in manufacturing sales during March, according to preliminary estimates.

Anticipation of Bank of Canada Decisions

Retail sales data for February, scheduled for release on Friday, is expected to provide further insight into domestic economic performance ahead of the Bank of Canadas monetary policy decision next week.

Investors are betting that the central bank will keep its key interest rate unchanged at 2.25%, with the possibility of a single rate hike before the end of the year.

Bond Movements

Canadian government bond yields declined across various maturities. The 10-year bond yield fell by 3.8 basis points to reach 3.454%, reflecting a flatter yield curve.