February 29, 2024

CANADA FX DEBT-C$ SLIDES Investors look at economy's response to rate hikes – 01/09/2024

The Canadian dollar fell to an almost 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 fell 0.4% to 1.3395, or 74.65 US cents, to the dollar, after hitting 1.3414, its weakest level since Dec. 15.

“The pressure and pressure of monetary policy is more evident in Canada than in the U.S.,” said Aaron Hurd, senior portfolio manager of the currency group at State Street Global Advisors. “I think that creates a stable backdrop where the Canadian dollar looks weak.

Canadians have borrowed heavily during the pandemic.

The BoC has said that the slowdown in the domestic economy indicates that its monetary policy is working. Money markets expect the central bank to cut its key interest rate in April, holding it at a 22-year high of 5% for the third straight meeting in December.

Canada's trade surplus narrowed to C$1.6 billion in November, from C$3.2 billion in October, leading to the first decline in precious metals exports in five months, Statistics Canada data showed. Separate data showed the value of Canadian building permits fell 3.9% in November compared to October.

The US dollar strengthened against a basket of major currencies ahead of expected US inflation data on Thursday, which may provide insight into the Federal Reserve's outlook.

Oil prices, one of Canada's top exports, recovered much of the previous day's sharp losses, helped by a drop in Libyan supplies and concerns that the conflict could spread to the Middle East. U.S. crude futures rose 2.1% to $72.24 a barrel.

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The 10-year Canadian yield fell 2.8 basis points to 3.218%. (Reporting by Bergl Smith, Editing by Marguerita Choi)