Canadian Dollar Set for Second Consecutive Weekly Decline Amid Interest Rate Differentials
The Canadian Dollar (CAD) is on track to decline for the second consecutive week due to its inability to benefit from the softer US Dollar (USD). Despite a pause in the Greenback's rally this week, the CAD has struggled to gain traction.
The US Federal Reserve raised interest rates by 25 basis points last week to 3.75%-4.00% and signalled that another increase may be needed this year, widening the front-end yield differential in favour of the USD. In contrast, the Bank of Canada (BoC) has kept its policy rate at 2.25%, adopting a more cautious stance.
The Canadian Dollar is also facing pressure from elevated US Treasury yields and the risk that new US tariffs could weigh on Canadian activity. Bank of Canada Governor Tiff Macklem recently warned that tariffs could push Canadian fourth-quarter growth below 1%.