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Blog Details

Canadian Dollar Struggles As Yield Spread Widens And U.S. Dollar Strengthens

Finance

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.

Canadian Dollar's Decline: Why Is It Happening?

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.

U.S. Dollar's Strength And Inflation Readout

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.

Bank Of Canada's Rate Cuts And Bond Yield Gap

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 Betting Against The Canadian Dollar

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.

Oil Prices Impacting Canada’s Economy

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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Mia
Author

I’m a passionate blog writer who loves learning about investments and financial markets. I spend my time researching different investment strategies to understand them better. My goal is to share the knowledge I gain in an easy-to-understand way. Outside of writing, I enjoy exploring new market trends and finding fresh investment opportunities.

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