Canadian dollar dips as greenback strengthens ahead of a big week for the US economy
The Canadian dollar fell to its lowest level in nearly a week on Monday, weighed down by a stronger US dollar and increased market expectations of a Bank of Canada (BoC) interest rate cut.
The loonie traded 0.2% lower at 1.3784 per US dollar, or 72.55 US cents. The decline comes ahead of pivotal US consumer price index (CPI) data due later this week, a reading that could influence whether the US Federal Reserve lowers borrowing costs in September.
News of a weaker loonie arrives with Canadian housing markets showing mild signs of recovery in July, with Toronto seeing an uptick in home sales and Vancouver close to a turning point, according to the city's real estate board.
But there's been little sign that the US and Canada are close to a deal to avert a punishing escalation in the trade war. The Canadian dollar plunged earlier in the year when US president Donald Trump announced plans to impose a wave of tariffs on imports crossing the border from Canada.
The US dollar gained ground broadly this week, supported by investors positioning ahead of the CPI release and the looming deadline for Washington and Beijing to reach a tariff deal. Speculators have increased their bearish bets on the Canadian dollar to the highest level in two months. Data from the US Commodity Futures Trading Commission on Friday showed net short positions rising to 79,420 contracts from 76,433 the week prior.
Recent Canadian economic data have reinforced expectations for a rate cut. Statistics Canada reported Friday that the economy shed 40,800 jobs in July, partially reversing strong gains in June. A new Bank of Canada survey released yesterday showed that financial markets expect two more rate cuts this year, likely bringing its benchmark rate down to 2.25% (from its current level of 2.75%).
The backdrop of elevated US tariffs on Canadian goods has dampened sentiment. While automobiles and certain goods meeting US-Mexico-Canada Agreement rules are exempt, the broader 35% tariff rate poses challenges for Canada’s export-reliant economy.
Oil prices, a key driver for the loonie, recovered modestly, rising 0.5% to $64.18 a barrel. Canadian government bond yields edged lower, with the 10-year yield down nearly one basis point at 3.376% after earlier touching its lowest since July 4.
The US dollar index, which tracks the greenback against six major currencies, has firmed ahead of the CPI release. A strong inflation print could further bolster the US currency, potentially keeping the loonie under pressure.
Despite economic headwinds, a recent Bank of Montreal (BMO) report said Canadian households have remained resilient in the face of trade tensions, and are spending steadily enough to mitigate at least some of the impact in business investment and exports.
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