Overview
- The Bank of Canada left its policy rate at 2.25% for a fifth straight meeting on June 10, and markets have trimmed expectations for further hikes which reduced short-term support for the currency.
- The Canadian dollar weakened to multi-month lows, trading around 1.396–1.399 USDCAD and briefly testing levels near 1.4023 as traders increased speculative short positions.
- A widening gap between U.S. and Canadian government yields has made U.S. assets more attractive and pulled the loonie lower, with the Canadian two-year yield falling far below its U.S. equivalent.
- Higher oil prices from Middle East tensions lifted export values and pushed April’s goods surplus to $2.72 billion, but oil gains have not offset weakness from yields, risk flows and USMCA uncertainty.
- A weaker loonie raises import costs for Canadian consumers and firms and could complicate inflation and policy choices for the Bank of Canada while a durable recovery likely depends on calmer geopolitics and clearer trade outcomes.