FX.co ★ Loonie Pressured by USD Strength

The Canadian dollar weakened to over 1.4 against the US dollar, retreating from its highest levels since October at 1.378 observed on May 6th. This decline is attributed to a renewed surge in the US dollar, spurred by the 90-day tariff truce between the US and China, which attracted capital flows into dollar assets and exerted upward pressure on the US currency, thereby affecting the loonie. On the home front, a lackluster employment report released on Friday, which showed fewer-than-expected job increases and a rising unemployment rate, has diminished expectations for additional interest rate hikes by the Bank of Canada. At the same time, market projections for the Federal Reserve's rate cuts have been scaled back, consequently widening the yield spreads between the US and Canada. Despite the recent surge in crude oil prices—which could potentially bolster Canada’s energy export revenues—the influence of the stronger US dollar and the shrinking differential in domestic monetary policy have overshadowed the supportive impact of oil.