The Canadian Dollar Weakened To A 4-1/2-year Low Against Its U.S. Dollar Counterpart On Thursday. This Shift Came As The U.S. Dollar Saw Broad-based Gains, While The Recent Widening In The Gap Between U.S. And Canadian Bond Yields Heavily Weighed On The Loonie. The Canadian Currency Dropped 0.2%, Trading At 1.4190 Per U.S. Dollar, Touching Its Weakest Level Since April 2020.
The Canadian Dollar's Weakness Is Largely Due To The Strength Of The U.S. Dollar. According To Marc Chandler, Chief Market Strategist At Bannockburn Global Forex LLC, "The Canadian Dollar's Weakness Is Partly A Function Of The Broad U.S. Dollar Strength." Additionally, Chandler Noted That There's A Stronger Relationship Between The U.S.-Canadian 2-year Interest Rate Differential And The Currency's Movement.
The U.S. Dollar Rose For A Fifth Consecutive Day, Supported By A Hotter-than-expected U.S. Inflation Readout And The European Central Bank's Decision To Cut Interest Rates. This Trend Exacerbated The Canadian Dollar's Weakness, As Investors Focused On The Increasing Spread Between U.S. And Canadian Bond Yields.
The Bank Of Canada Has Taken Aggressive Steps By Cutting Its Benchmark Interest Rate. On Wednesday, The Central Bank Reduced Its Rate By Half A Percentage Point To 3.25%. This Move, Coupled With Canada's 2-year Yield Falling To 126 Basis Points Below Its U.S. Counterpart, Marked The Largest Gap Since November 1997. Analysts And Investors Are Now Recalibrating Their Expectations For The Canadian Dollar's Future Performance.
Speculators Are Taking An Increasingly Bearish View Of The Loonie, With Bets At Historically Large Levels. Data From The U.S. Commodity Futures Trading Commission Reveals That Traders Are Piling On More Short Positions As The Canadian Currency Continues To Lose Value Against Its U.S. Counterpart.
The Price Of Oil, One Of Canada's Major Exports, Fell By 0.2% To $70.18 A Barrel. This Decline, Alongside Concerns About Market Supply, Has Added Further Pressure On The Canadian Dollar. Canada's Economic Outlook Remains Tied To The Performance Of Energy Exports, Especially Oil.
Meanwhile, Canadian Bond Yields Have Moved Higher Across The Curve, Tracking The Performance Of U.S. Treasuries. The 10-year Yield Rose By 4.8 Basis Points To 3.135%, Reflecting The Overall Movement In The Bond Market.
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