Loonie Slumps on Widening Yield Gap and Weaker Oil Prices

The Canadian dollar has been under pressure in recent weeks due to a widening yield gap between Canada and the US. As of Monday, the loonie was trading around C$1.4150, up roughly 0.06% on the day but still down from its peak earlier this month.

The two-year Canada-US yield spread has widened to 153 basis points, making US assets more attractive and weighing on the Canadian currency. This is the widest spread since February 2025.

Oil prices have also weakened recently, which normally provides support for the commodity-linked Canadian dollar. The drop in oil prices comes as markets assess the possibility of a US-Iran agreement, removing some of the loonie's usual support from Canada's large energy exports.