The Canadian dollar CADUSD fell to a near four-week low against its broadly stronger U.S. counterpart on Tuesday as investors weighed recent signs that the domestic economy is particularly sensitive to higher borrowing costs.
The loonie was trading 0.4% lower at 1.3395 to the greenback, or 74.65 U.S. cents, after touching its weakest intraday level since Dec. 15 at 1.3414.
“You can see the stress and the drag from monetary policy more clearly in Canada (than in the U.S.),” said Aaron Hurd, senior portfolio manager in the currency group at State Street Global Advisors. “I think that creates a consistent backdrop that biases the Canadian dollar weaker.”
Canadians borrowed heavily during the pandemic to participate in a red-hot housing market.
The BoC has said that a slowdown in the domestic economy is an indication that its monetary policy is working. Money markets expect the central bank to cut its benchmark interest rate in April after holding it at a 22-year high of 5% for a third straight policy meeting in December.
Canada’s trade surplus narrowed to C$1.6 billion in November from C$3.2 billion in October as precious metals led the first decline in exports in five months, data from Statistics Canada showed. Separate data showed the value of Canadian building permits falling by 3.9% in November from October.
The U.S. dollar rallied against a basket of major currencies ahead of U.S. inflation data on Thursday that could offer clues on the Federal Reserve policy outlook.
The price of oil, one of Canada’s major exports, clawed back much of the previous day’s heavy losses, supported by a Libyan supply outage and concern the Middle East conflict could widen. U.S. crude oil futures settled 2.1% higher at $72.24 a barrel.
The Canadian 10-year yield was down 2.8 basis points at 3.218%.