The Canadian dollar weakened to a one-month low against the US dollar on Wednesday, as the greenback gained strength amid robust American economic indicators and ongoing trade tensions. The loonie traded at C$1.3675 per US dollar, its weakest since mid-April, after closing at C$1.3615 on Tuesday.
Factors behind the decline
Analysts attribute the drop to a combination of factors, including stronger-than-expected US retail sales data and rising bond yields in the United States. The US dollar index, which measures the greenback against a basket of major currencies, rose 0.3% to 104.8, its highest in over a month.
Trade uncertainties weigh
Ongoing uncertainty surrounding Canada-US trade relations also pressured the loonie. Federal Minister Mary Ng recently linked the opening of the Gordie Howe International Bridge to progress in bilateral trade talks, adding to market jitters.
Meanwhile, the Bank of Canada is expected to hold interest rates steady at its next meeting, while the Federal Reserve has signaled a potential rate hike, widening the interest rate differential and further supporting the US dollar.
Impact on markets
The weaker Canadian dollar is a mixed blessing for the economy. Exporters, particularly in the manufacturing and natural resources sectors, benefit from a lower loonie as it makes their goods cheaper abroad. However, consumers face higher costs for imported goods, including food and electronics.
Oil prices, a key driver of the Canadian dollar, remained relatively stable, with West Texas Intermediate crude hovering around $78 per barrel. The correlation between oil prices and the loonie has weakened in recent years, but energy exports remain a significant factor.
Outlook
Currency strategists expect the Canadian dollar to remain under pressure in the near term, with potential support levels around C$1.3700. A break above that could signal further weakness, while a recovery above C$1.3550 would suggest a reversal.
Investors will closely watch upcoming Canadian inflation data and the Bank of Canada's policy decision for further direction. The loonie's performance also hinges on global risk sentiment, which remains fragile amid geopolitical tensions and trade disputes.
