Canadian Dollar Set for Second Weekly Decline Amid Policy Gap

The Canadian Dollar (CAD) is poised for its second consecutive weekly decline despite a pullback in the US Dollar's (USD) rally. The USD/CAD pair remains elevated near mid-July levels, with the Loonie struggling to benefit from higher oil prices.

According to TMGM analysis, the policy gap between the Federal Reserve and the Bank of Canada has widened the front-end yield differential in favor of the US Dollar. The two-year US Treasury yield trades around 4.87%, while Canada's two-year government bond yield stands near 3.35%, leaving a yield gap of almost 150 basis points.

Traders are focusing on upcoming data releases, including the US Personal Consumption Expenditures (PCE) inflation report and Nonfarm Payrolls (NFP) report, as well as Canada's July Gross Domestic Product (GDP) data. Bank of Canada Governor Tiff Macklem recently warned that tariffs could push Canadian fourth-quarter growth below 1%.