Loonie Slides to Two-Month Low Amid Strong US Economic Data

The Canadian dollar weakened against its US counterpart on Thursday, reaching a two-month low. The loonie was trading 0.2% lower at 1.4125 per US dollar, or 70.80 US cents. This decline comes as the US dollar rose to a two-month high against a basket of major currencies due to strong economic data and expectations of additional Federal Reserve interest rate hikes.

According to Tony Valente, a senior FX dealer at AscendantFX, the loonie's slide is more related to rates and USD movements than a Canada-specific shock. The lack of a trade and tariffs agreement with the US is also weighing on the Canadian growth outlook and limiting the Bank of Canada's room to move.

Canadian retail sales data added to the evidence of softer domestic demand, falling by 0.7% in July. A preliminary estimate showed sales rebounding by 1.3% in August, but analysts don't expect sustained strength due to renewed trade tensions and elevated gasoline prices.