Loonie Extends Weekly Decline as Yield Gap Widens
The Canadian dollar continued its decline against the US dollar on Friday, marking its eighth consecutive daily drop. The loonie fell by 0.1% to C$1.4010 per US dollar, or about 71.38 US cents, after reaching a low of C$1.40144 earlier in the session.
This level was last seen on August 7. According to Scotiabank strategists Shaun Osborne and Eric Theoret, the widening gap between Canadian and US short-term bond yields has been a major contributor to the loonie's weakness.
The two-year government bond yield in Canada is now 142 basis points below its US counterpart, marking the widest spread since July 28. Despite higher oil prices on Friday, which rose 0.5% to $102.43 a barrel, the Canadian dollar remained under pressure due to interest-rate and bond-market dynamics.
Investors are looking forward to Bank of Canada Governor Tiff Macklem's speech on Monday, where he may reinforce the central bank's hawkish tone following its policy meeting earlier this month. Markets currently assign a 60% probability of a rate hike at the next policy announcement on October 28.