Loonie Weakens as Oil Prices and Interest Rate Gap Drag Currency Down

The Canadian dollar, or loonie, weakened slightly against the U.S. dollar on Monday as early gains evaporated. The currency traded around C$1.4258 per U.S. dollar at 10:02 a.m. ET, after earlier climbing to C$1.4238 before retreating. The session high reached near C$1.4294, but the loonie remained close to last week's levels, which included an 18-month low due to widening interest-rate gaps and weaker oil prices.

The loonie's struggle to recover followed four consecutive weeks of losses, with a 0.8% drop last week. Persistent weakness in Canada’s services economy and softer crude prices contributed to the pressure. The S&P Global Business Activity Index improved slightly to 48.3 in September but stayed below the 50 threshold, indicating ongoing contraction. New business and export orders continued to decline, while input costs rose due to factors like tariffs and geopolitical uncertainty.

Canadian equities reflected the cautious mood, with the TSX opening 0.2% lower at 35,449.39, led by declines in energy shares. Oil prices fell about $1.10 to roughly $90 a barrel, adding to the loonie's challenges. Meanwhile, Canadian benchmark bond yields rose slightly, with the 10-year yield around 3.98%, though U.S. yields remained significantly higher.