The Canadian dollar which is also called the loonie, has declined to its lowest level against the US dollar in two years. On Tuesday, it was at 1.3945 CAD to USD, though it was near its worst level of the day since October 14, 2022 it dropped.
Current Economic Policies of the USA that has led to the strengthening of the Dollar.
The major reason for such a decline of the Canadian dollar is primarily affixed to the recent fortification of the United States dollar. Because of the signs that the U.S. President-elect Donald Trump might indulging in inflationary policies that will include tariffs as well as budget deficits for investment purposes the U.S. dollar has hit a six-month high against the chief foreign currencies. Amo Sahota, director at Klarity FX says that currently the U.S dollar is playing a major role in the global market which is putting pressure to other currencies like the Canadian dollar.
The Effect on Currency Markets
Another obvious one is that there is a trend of the bond yield spread between Canada and the U.S. Canada’s 10-year bond yield is up 1.38 points to reach its closest spread with U.S. 10-year government bonds at 116 bps, which is the widest since 1995.
This indicates that to complete on the global market, bonds from the United States pays more than the bonds from Canada and other global locations more encouraging investors to invest in the United States of America dollars. According to Sahota, the “widening yield spread” situation prolongs pressure on loonie to weaken further.
Canada’s Economic Concerns
Nevertheless, as it is illustrated and becomes evident, the depreciation of the Canadian currency is not as sharp as much as other flies in the Group of Ten (G10). Pressure points within the Canadian economy include current labour unrests in major ports of Vancouver and Montreal.
Looking Ahead
The Canadian dollar is rather unpredictable as long as the American policies define the economic relations of the countries. Though supported by its energy industry, rising interest rate differential and possibility of inflationary pressure if America leads will continue put pressures on Canadian dollar in the near term.
