Canadian Dollar Plummets to Extreme Lows Amid US Dollar Strength

The Canadian dollar has been experiencing significant weakness lately, dropping to an extreme low of around 70 cents on the US dollar. This is comparable to levels seen during the COVID-19 pandemic and Tariff Day in 2026. Some analysts initially thought this was a Canada-specific issue due to the country's reliance on oil prices, which had dropped from $92 per barrel to $70 per barrel in June 2026. Additionally, gold prices had fallen from $4,500 per ounce to just below $4,000 per ounce.

However, it appears that this is not a Canadian issue at all, but rather a result of US dollar strength. The Japanese yen has also been impacted, pushing back up to 162 against the US dollar, its lowest value in decades. This trend is attributed to the new Federal Reserve Chair, Kevin Warsh, who has a reputation as an inflation hawk and emphasizes price stability.

With the market's expectations for rate cuts dissipating, the futures market now prices in no change or even a 25 basis point hike from the Fed. The Bank of Canada is also expected to keep rates unchanged. As a result, short-term yield spreads have widened, with US two-year yields at 4.07% and Canadian two-year yields at 2.75%, leading to a stronger US dollar.