Canadian Dollar Weakens to 2-Month Low Amid Rising Long-Term Rates
The Canadian dollar, also known as the loonie, has weakened to its lowest level in more than two months against the US dollar. This decline comes as long-term borrowing costs have surged, weighing on investor sentiment. The loonie was trading 0.2% lower at 1.3525 to the greenback, or 73.94 US cents, after hitting its weakest level since June 1 at 1.3539.
According to Karl Schamotta, the chief market strategist at Corpay, risk-sensitive currencies like the Canadian dollar are remaining on the defensive. The aversion to risk is growing as investors grapple with the possibility of higher long-term rates. Strong economic growth in the United States and persistent inflation have raised concerns that interest rates will stay higher for a longer period.
Canada, being a significant producer of commodities such as oil, tends to be sensitive to shifts in investor sentiment. The decline in the Canadian dollar coincided with a nearly 2% drop in US crude oil futures, as investors balanced worries about China’s economy with expectations of tighter supply in the United States.
Some recent domestic data also revealed a mixed picture for Canada’s economy. Housing starts in July slipped by 10% compared to the previous month, following a strong showing in June. Additionally, wholesale trade fell by 2.8% in June from May.
As a result of these factors, Canadian government bond yields have risen across the curve. The 10-year yield, in particular, increased by 1.2 basis points to 3.764%. This rise comes after reaching its highest intraday level in nearly 15 years on Tuesday at 3.803%.
Overall, the weakening of the Canadian dollar can be attributed to the pressure from rising long-term borrowing costs, increased risk aversion, and mixed economic data. As investors navigate these challenges, the loonie faces downward pressure.
