Canadian Dollar Falls to Seven-Week Low Amid Widening Yield Gap
The Canadian dollar weakened to its lowest level in almost seven weeks against the US dollar on Tuesday (22 September). The decline came as the gap between US and Canadian bond yields continued to widen, despite Bank of Canada Governor Tiff Macklem adopting a more hawkish policy tone. As Reuters reported, the Canadian dollar fell 0.3% to 1.4075 per US dollar, equivalent to 71.05 US cents.
The loonie briefly touched 1.4078 per US dollar, its weakest intraday level since 5 August. Markets have increased the probability of a Bank of Canada rate hike in October, but Macklem's comments have not been enough to offset the strong dollar carry advantage.
Pressure on the Canadian dollar intensified as the yield on Canada's two-year government bonds fell 2.4 basis points, leaving it 148 basis points below the US yield. The gap was the widest since March 2025. The BoC Rate Hike Prospects are now pricing in around a 60% chance of raising interest rates in October.