The loonie is pressured by falling oil prices, rate cut expectations, and weak economic indicators.
New Delhi: The Canadian dollar weakened against its U.S. counterpart on Wednesday, weighed down by a widening interest rate gap, falling oil prices, and signs of softening domestic economic data.
The loonie slipped 0.3%, trading at 1.3975 per U.S. dollar, or 71.56 U.S. cents, after fluctuating between 1.3902 and 1.3984 during the session.
Investor sentiment shifted following disappointing Canadian jobs data last week, pushing the odds of a Bank of Canada (BoC) interest rate cut next month above 50%. “That creep up in interest rate expectations for the Bank of Canada is weighing on the loonie,” said Amo Sahota, director at Klarity FX in San Francisco. He stated that divergent rate outlooks between the Bank of Canada and the Federal Reserve of the United States have contributed to a rising short-term yield gap.
Canada’s 2-year government bond yield fell by 2.6 basis points, increasing the gap with the U.S. equivalent to 145 basis points—the widest spread since April 2.
Oil prices, which play a crucial role in supporting the Canadian economy, also weighed on the loonie. Crude closed down 0.8% at \$63.15 per barrel, pressured by worries over increasing U.S. stockpiles and OPEC’s reduced oil supply growth forecast for non-member producers.
Building permits in Canada dropped 4.1% in March, with Ontario—the nation’s industrial center—posting the biggest drop, further dampening mood. Ontario is expected to release its annual budget on Thursday, although Canadian Finance Minister Francois-Philippe Champagne has signaled that the Liberal government will instead present an economic update later in the year.
Meanwhile, Canadian 10-year bond yields rose 4.6 basis points to 3.256%, tracking a broader move higher in U.S. Treasury yields.
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