The Canadian dollar weakened to a 14-month low against its U.S. counterpart on Thursday after the Federal Reserve’s hawkish shift a day ago led to a wider gap between U.S. and Canadian bond yields.
The loonie was trading 0.3% lower at 1.4135 per U.S. dollar, or 70.75 U.S. cents, after touching its weakest intraday level since April last year at 1.4146.
“Every major currency is down against the greenback as traders ignore domestic developments and follow rate differentials,” Karl Schamotta, chief market strategist at Corpay, said in a note. The U.S. dollar added to the previous day’s gains against a basket of major currencies as traders ramped up bets on Fed interest rate increases this year.
Canada’s 2-year yield fell 3.1 basis points further below its equivalent U.S. rate to a gap of 137 basis points, marking the widest spread since May 2025.
Falling oil prices and trade uncertainty have also contributed to declines for the loonie, Schamotta said. U.S. President Donald Trump on Wednesday said that the United States would do better without the U.S.-Mexico-Canada Agreement on trade and that he would prefer not to have a new one, but added that he was open to doing it.
The price of oil, one of Canada’s major exports, fell to its lowest level since before the start of the Iran war at the end of February as an interim deal to end fighting, reopen the Strait of Hormuz and ease sanctions on Tehran boosted the global supply outlook.
U.S. crude oil futures were trading 1.9% lower at $75.30 a barrel, while Canadian government bond yields eased across the curve.
The 10-year was down 4.8 basis points at 3.372%, after earlier touching its lowest level since March 9 at 3.356%.
“Bigger picture, the Canadian dollar remains on the defensive more generally — it’s flirting with its lowest level against the euro since 2009, for example,“ Douglas Porter, BMO Capital markets chief economist, said in a note Thursday. ”No doubt, the currency also has the heavy anchor of USMCA uncertainty tied to it, while the U.S. dollar is thriving on the tech boom and related inflows.”
“Finally, the pullback in oil is a mild drag on the loonie, although the currency barely benefited from the prior upswing in crude prices. That was a warning. After all, a market that doesn’t react bullishly to bullish news isn’t bullish,” said Porter.
Meanwhile, speculators raised their bearish bets on the Canadian dollar to the highest level since December, data from the U.S. Commodity Futures Trading Commission showed on Friday. Non-commercial net short positions stood at 119,999 contracts as of June 9, up from 94,111 in the prior week.
With reports from Globe staff
