Loonie Sinks Amid Oil Price Drop and Widening Rate Gap

The Canadian dollar has continued to slide against its US counterpart, reaching an 18-month low. The decline is largely attributed to falling oil prices and a widening interest rate differential between Canada and the US.

Oil prices have dropped by 1.6% following a G7 agreement to release 100 million barrels from emergency reserves, which should help ease near-term fuel costs. Meanwhile, the yield on Canada's 2-year government bond has slipped further below its US equivalent, widening the gap to about 157 basis points.

This interest rate differential is significant because it makes investors more likely to hold onto US dollars, which can earn higher returns. As a result, the Canadian dollar is being pulled towards the lower-yielding currency.