Canadian Dollar remains under pressure as hawkish Fed contrasts with steady BoC

The Canadian Dollar (CAD) remains pressured as the Federal Reserve (Fed) adopts a more hawkish stance compared to the Bank of Canada (BoC). US interest rates have climbed, creating an interest-rate gap between the US and Canada that has weighed on the CAD. The pair struggled to gain momentum as US Treasury yields declined alongside falling oil prices, which are a significant source of revenue for Canada.

The 10-year US Treasury yield is currently at 4.95%, below the 5.04% level reached last week. The US Dollar Index is also lower at 100.25, below its seven-week high of 100.56. Oil prices, particularly WTI crude at $93.50, have dropped for a fourth straight day to their lowest level in over a week. The widening spread between short-term US and Canadian yields is the primary driver of the CAD's recent decline, with the CAD losing around 1% against the US Dollar this month.

At their recent meetings, the Fed raised rates by 25 basis points to 3.75%-4.00%, while the BoC maintained its policy rate at 2.25% for the seventh consecutive time. Fed policymakers expect further rate hikes this year, keeping the possibility of additional tightening in the pipeline. Canadian Governor Tiff Macklem is set to discuss economic developments in Halifax on Monday, providing more insight ahead of the BoC's interest rate decision on October 28.

The BoC previously expressed concerns about broader inflation impacts from higher energy prices, but emphasized that oil prices are beyond their control.