The Canadian dollar underperformed in the week ending September 18, weakening broadly versus the most traded currencies. The most pronounced move was against the U.S. dollar, with USD/CAD rising to 1.4005 - its highest level in a month - after a week that saw the Fed raise rates to 4.00% on September 16. The loonie also lost ground against the yen and Swiss franc, showed little change against the euro, and held relatively steady versus the Australian dollar.
CAD: The underdog of the week
Over the seven-day period the Canadian dollar declined against all the top-traded currencies in the basket used for this review. One of the clearest signs of such underperformance was the move in USD/CAD. At one point the pair climbed from 1.3918 to 1.4005, a move described in the week as a roughly 0.6% decline in the loonie versus the greenback. Other crosses recorded softer CAD readings, though the degree varied across pairs.
Key drivers
- Federal Reserve tightening: The U.S. central bank raised its policy rate to 4.00% on September 16. That decision and the Fed's hawkish tone widened the yield gap and made the U.S. dollar more attractive to investors, weighing on the Canadian dollar.
- Limited support from oil: Brent crude traded above $107 over the period, yet any commodity-related lift to the loonie was offset by risk aversion in markets and stronger U.S. yields, muting what might normally be a tailwind for CAD.
- Canadian inflation and policy outlook: August inflation held at 3.0% - above the Bank of Canada target but described as insufficient to compel an immediate policy response. That left the central bank with limited justification to tighten, exposing the currency to external demand for U.S. dollars.
Where the loonie lost most
| Pair | Sep 11 Close | Sep 18 Close | Weekly Change | Comment |
|---|---|---|---|---|
| USD/CAD | 1.3865 | 1.4005 | -1.0% | Most pressure: Fed-driven |
| EUR/CAD | 1.6077 | 1.6068 | Flat | Outperformed euro slightly |
| GBP/CAD | 1.8755 | 1.8708 | +0.25% | Slight GBP strength |
| CAD/CHF | 0.5890 | 0.5891 | Flat | No real move |
| AUD/CAD | 0.9945 | 0.9979 | -0.34% | AUD weaker, CAD steady |
| CAD/JPY | 110.85 | 112.65 | +1.6% | Only yen fell more |
Across the crosses, the most significant driver of CAD weakness was the dollar's strength following Federal Reserve action. The rise in CAD/JPY noted above is described in the market commentary as reflecting yen weakness rather than a clear gain for the Canadian currency.
Macro moves: Why FX desks paid attention
- The Federal Reserve's rate increase and hawkish messaging made the dollar the dominant currency for the week, pushing USD/CAD to its monthly peak.
- Canadian data - notably steady inflation and flat jobs - did not provide the Bank of Canada with a compelling prompt to change policy, leaving the currency vulnerable to international capital flows.
- Although oil typically offers support to the loonie, the combination of risk-off sentiment and U.S. yields reduced the commodity's capacity to prop up CAD this week.
One chart, one lesson
Movements in currencies are determined by a mix of central bank policy and global risk flows, which can outweigh commodity support even when resource prices are elevated.
Note: This article preserves reported market moves, central bank actions, inflation readings, and commodity levels as stated in the reviewed week.