The Canadian dollar weakened on Monday, reaching levels not seen in 14 months as a broadly firmer U.S. dollar put pressure on the loonie. The currency was trading 0.1% lower at 1.4162 per U.S. dollar, equivalent to 70.61 U.S. cents, and touched 1.4193 during the session - its weakest intraday reading since April 2025.
Domestic inflation data helped to temper what might otherwise have been a larger decline. Canada’s annual inflation rate rose to 3.2% in May, above consensus expectations. The increase was linked in part to higher gasoline costs, which were pushed up by stronger crude oil prices associated with the Iran war. At the same time, the Bank of Canada’s preferred measures of core inflation registered more moderate increases, indicating a less uniform acceleration in underlying price pressures.
The U.S. dollar extended gains against major peers following last Wednesday’s Federal Reserve policy announcement. The Fed’s updated projections and comments from Kevin Warsh, who chaired his first meeting in that role, were interpreted as more hawkish than markets had priced, helping to lift demand for the dollar.
Oil, one of Canada’s primary exports, saw a notable intraday move. Prices fell 2.6% to $74.60 a barrel after U.S. Vice President JD Vance said progress had been made in talks with Iran and that the Strait of Hormuz was open, comments that reduced immediate supply concerns.
Canadian government bond yields rose across the curve on the day. The two-year yield climbed by 3 basis points to 2.810%. At the same time, the two-year Canadian yield moved 1.9 basis points further below its U.S. counterpart, expanding the yield gap to roughly 140 basis points in favor of the U.S. note. That wider differential is consistent with flows toward U.S. fixed income relative to Canadian paper.
In summary, the loonie’s slide to a 14-month low was driven primarily by broad U.S. dollar strength following the Fed meeting, while higher-than-forecast domestic inflation and movements in oil and bond markets limited the extent of the weakness.