Canadian dollar heads for weekly decline on “punishing” yield spreads
TLT•The Canadian dollar was headed for a 0.9% weekly decline as widening US-Canada yield spreads weighed on the currency. It traded at 1.4257 per US dollar, while investors saw a 66% chance of a Bank of Canada rate hike in December.
1. Currency under pressure
The Canadian dollar was nearly unchanged at 1.4257 per US dollar on Friday, after trading between 1.4229 and 1.4270. It touched a 19-month low of 1.4331 on Thursday and was headed for a 0.9% weekly decline. Scotiabank strategists said widening yield spreads near the front of the curve had been “punishing” for the loonie.
2. Rate expectations shift
Since the start of November, Canada's two-year yield has fallen about 20 basis points further below its US equivalent, leaving a 147-basis-point gap. Canada's economy shed jobs for a third straight month, while US inflation data bolstered expectations for Federal Reserve rate hikes. Investors saw a 66% chance of a Bank of Canada rate increase in December, up from 40% at the start of the week; October inflation data was due Monday, with economists forecasting annual consumer price growth of 3.2%.
