The Canadian dollar is holding steady near a 19-month low against the US dollar as markets wait for US inflation data. Here is what it means for Canadians.
The Canadian dollar is holding steady near a 19-month low against the US dollar, Reuters reported. Markets are waiting for the latest US inflation data, which could shape the next moves in currency markets. This article explains what is driving the loonie, the key numbers from recent days, and what a weaker currency means for Canadian households and investors.
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Canadian Dollar Near a 19-Month Low: What Happened
The loonie has lost ground against the US dollar in recent weeks and is now trading close to its weakest level in 19 months. After that slide, the currency has steadied, as traders hold back from big bets before new US inflation figures arrive.
This kind of pause is common before major data releases. Inflation numbers can change expectations for interest rates, and interest rates are one of the biggest drivers of exchange rates. Until the data is out, many traders prefer to wait.
Why the US Dollar Is So Strong
Much of the pressure on the Canadian dollar comes from the other side of the trade: a strong US dollar. On November 13, CoinDesk reported that the US Dollar Index, which tracks the greenback against major currencies, was holding at 19-month highs. It noted that the index had risen nearly 2% since early October as expectations for Federal Reserve rate hikes strengthened.
When the US central bank is expected to raise rates faster or further than other central banks, investors are drawn to US dollar assets because they offer higher returns. That pushes up the US dollar and pushes down currencies such as the loonie. Our report on Bitcoin slipping below $70K shows how the same dollar strength is weighing on other markets.
Recent Canadian Dollar Numbers
A Reuters report published on November 9 and carried by Kitco gave useful background on the Canadian dollar earlier this week. The figures below come from that report, not from today’s session.
| Item (November 9 Reuters report) | Figure |
|---|---|
| Loonie rate | 1.4135 per US dollar (70.75 US cents) |
| Canadian jobless rate (October) | 6.7%, a six-month high |
| Canadian employment | Fell for a third straight month in October |
| Market odds of a Bank of Canada hike in December | About 40% |
| Market odds of Fed tightening next month | About 84% |
| US crude oil futures | Down 3.5% at $87.64 a barrel |
| Canada 10-year bond yield | 3.653% |
Key Reasons Behind the Canadian Dollar Weakness
Weak jobs data in Canada
Canadian employment fell for a third straight month in October, and the jobless rate rose to a six-month high of 6.7%, according to the November 9 Reuters report. Rising unemployment and slowing wage growth reduced market bets on a December rate hike from the Bank of Canada.
Diverging rate expectations
The Bank of Canada raised rates in October for the first time in three years. But markets saw only about a 40% chance of another hike in December, compared with about an 84% chance that the US Federal Reserve would tighten. When US rates are expected to rise faster, the Canadian dollar tends to lose ground. Strategists at TD Securities said diverging employment data would likely keep USD/CAD supported above 1.40.
Oil prices
Canada is a major oil exporter, so the loonie often moves with crude prices. Lower oil prices can reduce demand for the loonie. On November 9, US crude futures fell 3.5% to $87.64 a barrel, Reuters reported. For more on Canada’s energy exports, see our story on how an LNG export goal could support the economy.
How to read the exchange rate
Currency traders usually quote the pair as USD/CAD, which shows how many loonies it takes to buy one US dollar. A reading of 1.4135 means one US dollar costs about C$1.41. When this number rises, the loonie is weakening. When it falls, the loonie is getting stronger. The same rate can also be shown the other way round, in US cents per loonie. A rate of 70.75 US cents means one loonie buys a little under 71 US cents. Both figures describe the same price, just from different sides of the trade.
Why US Inflation Data Matters for the Loonie
US inflation data, especially the consumer price index (CPI), is one of the most closely watched releases in global markets. It shows how fast prices are rising in the world’s largest economy.
If inflation comes in higher than expected, markets usually expect the Federal Reserve to keep rates high or raise them further. That tends to lift the US dollar and weigh on the Canadian dollar. If inflation comes in lower than expected, rate-hike bets can fade, which can give the loonie room to recover.
Because the United States is Canada’s largest trading partner, US economic data has a strong and direct effect on the exchange rate.
What a Weak Canadian Dollar Means for You
A weaker Canadian dollar affects households and businesses in different ways:
- Travel to the US costs more: each Canadian dollar buys fewer US dollars, so trips, hotels and meals south of the border become more expensive.
- Imported goods can cost more: many goods and foods are priced in US dollars, so a weaker loonie can push up prices over time.
- Exporters can benefit: Canadian companies that sell abroad earn more Canadian dollars for each US dollar of sales.
- US investments gain in loonie terms: Canadians who hold US stocks or funds see those holdings worth more when converted back to Canadian dollars.
- Tourism into Canada can rise: visitors from the US find Canada cheaper.
What to Watch Next for the Canadian Dollar
Several events could decide whether the Canadian dollar stays near its 19-month low or starts to recover:
- US inflation data: the main near-term driver for rate expectations and the US dollar.
- Bank of Canada signals: any hints about the path of rates ahead of the December decision.
- Federal Reserve outlook: how US rate expectations shift after the data.
- Oil prices: moves in crude can lift or weigh on the loonie.
- Canadian economic data: jobs, inflation and growth figures at home.
Other commodity-linked currencies are also under pressure. Our report on the New Zealand dollar falling for a third straight day shows a similar pattern.
Frequently Asked Questions
Why is the Canadian dollar near a 19-month low?
The loonie has weakened as the US dollar has strengthened on expectations of US rate hikes. Weak Canadian jobs data has also reduced bets on Bank of Canada hikes, widening the gap between the two countries’ rate outlooks.
Why are markets waiting for US inflation data?
US inflation figures can change expectations for Federal Reserve rate moves, which have a big effect on the US dollar and therefore on the Canadian dollar.
Is a weak Canadian dollar bad for Canada?
It has mixed effects. It makes imports and US travel more expensive but helps exporters and makes Canada cheaper for foreign visitors.
What is the loonie?
The loonie is the common nickname for the Canadian dollar, named after the loon bird shown on the one-dollar coin.
This article is for information only and is not financial advice.
