Investing.com — The Canadian dollar weakened on Monday as falling oil prices and expectations of further U.S. monetary tightening weighed on the currency, extending a recent slide that has taken it close to its weakest level since early August.
The loonie has faced persistent pressure as the gap between U.S. and Canadian interest rates has widened, making U.S. assets relatively more attractive. The move has also coincided with a pullback in crude prices, an important source of support for the commodity-linked Canadian currency.
At 12:17 a.m. ET, USD/CAD was around 1.4007, up 0.17%, implying the loonie was down roughly 0.17% against the U.S. dollar. USD/CAD had moved above the psychologically important 1.40 level after the loonie weakened to its lowest level since Aug. 7 last week. Monday’s session has kept the currency near those recent lows.
“I think the key point with the Canadian dollar right now is that oil alone is not enough to tell you where the currency should trade. Higher crude would normally provide fairly direct support to the Loonie, but that is running up against tariff uncertainty, concerns around Canadian growth and a rate backdrop that continues to favour the US dollar,” said Kyle Sonlin, President and Co-founder of Global Settlement Network.
The Canadian dollar’s decline has accelerated over the past two weeks. Bank of Canada data showed the official USD/CAD rate rising from 1.3784 on Sept. 8 to 1.4002 on Sept. 18, reflecting a broad weakening of the currency over the period.
Oil prices provided little support on Monday. Brent crude fell about 2% as markets focused on signs that Saudi oil flows could recover and on diplomatic efforts surrounding the Middle East conflict. Lower crude prices can weigh on the Canadian dollar because of Canada’s large energy-export exposure.
The U.S. dollar, meanwhile, remained supported by expectations that the Federal Reserve may tighten policy further after its latest rate increase. Chicago Fed President Austan Goolsbee said on Monday that persistent inflation linked to strong demand could require higher rates, reinforcing the prospect of a prolonged period of restrictive U.S. monetary policy.
The Bank of Canada has held its policy rate at 2.25%, leaving a substantial gap with U.S. rates. That divergence has become an increasingly important driver of the Canadian currency, with traders watching whether the central bank signals any change in its policy outlook.
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