The Canadian dollar, also known as the “loonie,” has experienced a 0.5 percent decline against the US dollar, marking its lowest point in eight days. This trend is attributed to the sustained strength of the US dollar and a decrease in risk appetite, according to Michael Goshko, senior market analyst at Convera Canada ULC. The US dollar (DXY) has continued to strengthen against a range of major currencies, prompting a retreat in Wall Street’s primary indices. This situation arises from investor apprehensions regarding an extended period of restrictive monetary policy by the Federal Reserve. Canada, being a significant producer of commodities, especially oil, is sensitive to shifts in investor sentiment. As a response, the price of oil saw a modest 0.8 percent increase, reaching $90.39 per barrel, driven by expectations of tightened supply.
Key Points:
- The Canadian dollar, referred to as the “loonie,” has dipped by 0.5 percent against the US dollar, reaching its weakest level in eight days, trading at 1.3518 to the greenback.
- The strength of the US dollar has persisted for nearly two months, contributing to the challenge faced by the Canadian dollar in resisting its surge.
- Investor sentiment has weakened, leading to a retreat in Wall Street’s primary indices. The US dollar (DXY) has gained ground against a basket of major currencies, reflecting concerns about prolonged restrictive monetary policies by the Federal Reserve.
- Canada, known for its substantial production of commodities, particularly oil, is susceptible to shifts in investor sentiment. The price of oil has risen by 0.8 percent to reach $90.39 per barrel, driven by expectations of a decrease in supply.
- Preliminary data from Statistics Canada indicates a significant increase in Canadian wholesale trade by 2.6 percent in August compared to July, with factory sales simultaneously surging by 1 percent. Further insights into the domestic economy’s strength are anticipated with the release of GDP data for July.
- The Canadian 10-year yield has increased by 2 basis points to 4.046 percent, marking its highest point since December 2007, mirroring movements in US Treasuries.
- Canada has made a noteworthy fiscal move by increasing the annual issuance limit for Canada Mortgage Bonds (CMBs) from C$40 billion to C$60 billion. This augmentation is intended to fund mortgage loans for multi-unit rental projects insured by the Canada Mortgage and Housing Corporation, as articulated by Finance Minister Chrystia Freeland.
Analysis: The decline in the Canadian dollar against the US dollar underscores the prevailing strength of the USD and reduced risk appetite among investors. This situation is further compounded by concerns about an extended period of restrictive monetary policy by the Federal Reserve. Canada’s sensitivity to shifts in investor sentiment, particularly in commodities, plays a significant role in this scenario. The increase in the issuance limit for Canada Mortgage Bonds is a strategic fiscal move aimed at supporting multi-unit rental projects.
Background: The Canadian dollar, known as the “loonie,” is the official currency of Canada and is often influenced by factors such as commodity prices, economic data, and global market trends. It holds a vital position in Canada’s economic landscape. (Published by Market News Nigeria)