What’s going on here?
The Canadian dollar fell to an 11-week low, slipping 0.3% against the US dollar, as the yield gap between US and Canadian bonds significantly widened, attracting more investors to US bonds.
What does this mean?
The drop in the Canadian dollar is mainly due to the widening yield spread between US and Canadian bonds, now at 99 basis points—the largest since August 2006. This makes US bonds more appealing, drawing investors away from Canadian assets. The Bank of Canada is expected to announce a significant interest rate cut of 50 basis points this week, marking its first major reduction outside the pandemic in 15 years, which is putting additional pressure on the loonie. Speculators are increasing their bearish bets, with net short positions on the rise. Meanwhile, US bond yields are climbing amid upcoming political events like the November presidential election, strengthening the US dollar against other major…
