Canadian Dollar falls to two-month low as higher US yields outweigh Oil support
USD/CAD extends its advance on Thursday, climbing to its highest level since mid-July. The pair has posted only one daily decline over the past 12 trading days, reflecting the diverging monetary policy outlooks of the Federal Reserve (Fed) and the Bank of Canada (BoC).
The Canadian Dollar experienced a two-month low as higher US yields outpaced support from oil prices. The US Dollar strengthened, reaching its highest level since mid-July, with the USD/CAD pair trading around 1.4113, a nearly 2% gain this month. Canadian Retail Sales data failed to bolster the Canadian Dollar, with headline sales falling 0.7% month-over-month in July, slightly better than the 0.8% decline anticipated.
The widening gap between US and Canadian bond yields has been a primary driver of the USD/CAD rally, with the two-year US Treasury yield at 4.89% compared to Canada's 3.40%. US Treasury yields are increasing as traders anticipate potential Fed rate hikes later in the year. The Fed raised rates by 25 basis points last week, bringing the federal funds rate to 3.75%-4.00%.
US economic data, such as initial jobless claims and the S&P Global Composite PMI, have supported the case for further tightening. Despite this, the Bank of Canada maintained its policy rate at 2.25% for the seventh consecutive meeting, noting limited evidence of higher energy prices impacting broader inflation. The Canadian Dollar's strength against the Swiss Franc was its only positive against major currencies on the day.
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