Canadian dollar retreats as oil slump and rate gap weigh

The Canadian dollar, or loonie, gave up earlier gains on Monday as lower oil prices and a persistent interest-rate gap between Canada and the U.S. weighed on the currency. The loonie was trading around C$1.4258 per U.S. dollar by 10:02 a.m. ET, after briefly strengthening to C$1.4238 before retracing. The currency remains near levels seen late last week, when it hit an 18-month low amid widening interest-rate differentials and weaker oil prices.

Weakness in Canada’s services sector added to the loonie’s struggles. The S&P Global Business Activity Index improved slightly to 48.3 in September from 46.8 in August but stayed below the 50 threshold, indicating ongoing contraction. New business and export orders declined further, while input costs rose due to tariffs and uncertainty from the war in Iran. The broader composite PMI also remained in contraction territory.

Canadian equities reflected the cautious mood, with the TSX opening 0.2% lower at 35,449.39, led by declines in energy shares. Oil prices fell about $1.10 to roughly $90 a barrel, adding pressure on the commodity-linked currency. Meanwhile, U.S. Treasury yields rose, with the 10-year yield around 3.98%, though still lower than Canada’s comparable yield.

The combination of economic headwinds and declining oil prices prevented the loonie from recovering after four consecutive weeks of losses, including a 0.8% drop last week.