Canadian Dollar Slips as Oil Prices Fall and US Rate Outlook Tightens
The Canadian dollar has weakened in recent days due to falling oil prices and expectations of further US monetary tightening. The loonie, as it's known, has been under pressure as the gap between US and Canadian interest rates has widened, making US assets relatively more attractive.
This divergence has become a significant driver of the Canadian currency, with traders watching for any change in the Bank of Canada's policy outlook. Despite oil prices falling about 2% on Monday, providing little support to the loonie, the USD/CAD rate rose above the psychologically important 1.40 level.
Kyle Sonlin, President and Co-founder of Global Settlement Network, noted that oil alone is not enough to determine where the currency should trade. Higher crude would normally provide direct support to the loonie, but it's running up against tariff uncertainty, concerns around Canadian growth, and a rate backdrop that continues to favor the US dollar.
The Bank of Canada has held its policy rate at 2.25%, leaving a substantial gap with US rates. This divergence has accelerated over the past two weeks, with the official USD/CAD rate rising from 1.3784 on Sept. 8 to 1.4002 on Sept. 18.