Canadian dollar heads for third straight weekly decline on wider yield spreads
TLT•The Canadian dollar was down 1.2% for the week and on track for its steepest weekly decline since March as Canadian bond yields fell further below U.S. rates. The two-year yield gap widened to roughly 153 basis points, its widest since February 2025.
1. Loonie extends weekly losses
The Canadian dollar was trading 0.1% lower at 1.4152 per U.S. dollar on Friday, or 70.66 U.S. cents, after touching 1.4154, its weakest intraday level since July 14. It was down 1.2% for the week. Amo Sahota of Klarity FX said the move was, in his view, exclusively driven by U.S. dollar strength.
2. Yield gap widens
Canada’s two-year yield fell 6.2 basis points further below the equivalent U.S. rate, leaving a gap of roughly 153 basis points, its widest since February 2025. Canadian 10-year yields fell 4.2 basis points to 3.956%. Sahota said rising U.S. yields and the yield spread had made the currency’s decline easy to justify.
3. Economic and oil pressures
A preliminary estimate showed Canadian wholesale trade declined 1.5% in August from July. U.S. orders for key manufactured capital goods rose more than expected in August, while data for the prior month was revised sharply higher. Oil, one of Canada’s major exports, fell 2.6% to $92.17 a barrel as markets weighed the possibility of a U.S.-Iran truce.
