Loonie hits six-week high as Canada-US yield gap narrows
TLT•The Canadian dollar rose to a six-week high, trading 0.1% higher at 1.3982 per US dollar, as the Canada-US two-year yield gap narrowed. The Bank of Canada raised its key rate by 25 basis points to 2.50% on Wednesday, while the Federal Reserve held its rate steady.
1. Loonie strengthens
The Canadian dollar reached its strongest intraday level since September 16 on Thursday, touching 1.3966 per US dollar before trading at 1.3982, up 0.1%, or 71.52 US cents.
2. Yield gap narrows
The gap between Canadian and US two-year yields narrowed by 4.7 basis points to about 128 basis points in favor of the US note, after reaching 160 basis points earlier this month. The Bank of Canada raised its key interest rate by 25 basis points to 2.50% on Wednesday and said further increases might be needed to prevent higher energy costs from driving broader inflation; the Federal Reserve left its rate unchanged.
3. Oil and budget factors
Oil prices remained elevated at $102 a barrel, lending some support to the currency, even as US crude futures settled 0.8% lower. Ontario forecast a wider budget deficit and a delayed return to balance as it provides business tax relief and support for sectors affected by US tariffs.
