The Canadian dollar weakened to a nearly seven-week low against its U.S. counterpart on Tuesday as the gap between U.S. and Canadian yields continued to widen despite the recent more hawkish stance of Bank of Canada Governor Tiff Macklem.
The loonie was trading 0.3% lower at 1.4075 per U.S. dollar, or 71.05 US cents, after touching its weakest intraday level since August 5 at 1.4078.
“The combination of widening rate differentials, escalating trade uncertainty and bullish technical momentum is driving USD-CAD toward fresh highs,” said Kevin Ford, FX & macro strategist at Convera.
“Markets have increased the probability of an October BoC hike, but Macklem’s tougher language has not offset the dollar’s growing carry advantage.”
The U.S. dollar rose against a basket of major currencies as investors weighed the possibility of more interest rate hikes from the Federal Reserve.
The Canadian 2-year yield fell 2.4 basis points further below the US equivalent to a gap of about 148 basis points in favour of the U.S. note, marking the widest gap since March 2025.
Investors see a roughly 60% chance the BoC will hike in October. On Monday, Macklem said that the central bank had to take into consideration the fact that while slower growth linked to new US tariffs could drag inflation downwards, the Middle East conflict could push it up as oil prices soar.
The price of oil, one of Canada’s major exports, was volatile as traders worried about global supplies. U.S. crude oil futures were trading 0.9% higher at $96.65 a barrel.
As trade uncertainties mount, Canada has sought to diversify economic ties and speed up the approval process for major natural resource projects.
The Canadian 10-year yield was barely changed at 3.847%, after touching an earlier two-week low at 3.802%.