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Canadian Dollar Hits 10-Week Low as U.S. Yield Gap Widens
Summary
The Canadian dollar declined against its U.S. counterpart, pressured by a widening government bond yield spread that favors the greenback and a recent pullback in crude oil prices.
The Canadian dollar weakened against the U.S. dollar on Monday, trading near a 10-week low as the gap between Canadian and U.S. government bond yields expanded and softer crude oil prices weighed on the currency. The move extends the loonie's third consecutive weekly decline and reverses much of its gains from earlier in September.
Widening Yield Gap Favors Greenback
The primary driver of the Canadian dollar's weakness is the widening interest rate differential between Canada and the United States. The spread between the two-year Canadian and U.S. government bond yields has widened to approximately 153 basis points, its largest gap since February 2025, according to market data.
This significant yield advantage makes U.S.-denominated assets relatively more attractive to investors, increasing demand for the U.S. dollar at the expense of its Canadian counterpart.
AdMarket Performance and Softer Oil
In early trading, the USD/CAD currency pair was changing hands at around C$1.4150. This follows a session on Friday where the loonie touched its weakest level in nearly 10 weeks at C$1.4154. The currency has steadily lost ground since trading near C$1.38 earlier in the month.
Adding to the pressure, prices for crude oil, one of Canada's major exports, have softened from recent highs. This pullback in the commodity market removes a key pillar of support for the loonie, which often tracks the performance of energy prices.
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Canadian Dollar Weakens as U.S. Yield Advantage Widens, Oil Prices Soften
The Canadian dollar fell against its U.S. counterpart, pressured by a widening government bond yield spread that favors the greenback and a pullback in crude oil prices.