The Canadian dollar weakened modestly against the U.S. dollar on Monday after an initial rebound failed to hold, with falling crude prices and a sustained gap in interest rates between Canada and the United States keeping pressure on the commodity-linked currency.
At about 10:02 a.m. ET, the loonie was trading near C$1.4258 per U.S. dollar, slightly softer than the prior close around C$1.4251. Earlier in the session the currency had strengthened to roughly C$1.4238 before giving up those gains; the session high was near C$1.4294.
Those levels left the Canadian dollar close to where it finished last week, when it hit an 18-month low amid widening interest-rate differentials and softer oil prices. The loonie declined for a fourth consecutive week last week, losing approximately 0.8%.
Domestic activity and market moves
Evidence of continued weakness in Canada’s services sector provided a further headwind for the currency. The S&P Global Business Activity Index for services rose to 48.3 from 46.8 in August, indicating an improvement in the pace of deterioration but remaining below the 50 threshold that separates expansion from contraction.
Detail from the survey signaled persistent pressure on demand: new business stayed in contraction for a fifth month, export orders fell off more sharply, and input costs accelerated. Tariffs and uncertainty related to the conflict in Iran were cited as factors weighing on activity and increasing costs. The broader composite PMI also inched higher to 48.7 from 47.8 but remained in contraction territory.
Canadian equities reflected the cautious backdrop. The S&P/TSX Composite Index opened lower by 0.2% at 35,449.39, with energy shares leading the decline as crude softened.
Oil and bond yields
Falling oil prices continued to sap support for the loonie. U.S. crude futures were down by about $1.10 to roughly $90 a barrel, reducing demand for Canadian energy-linked assets.
At the same time, Canadian government bond yields moved higher, with the 10-year yield around 3.98%. The comparable U.S. yield remained substantially higher, reinforcing the interest-rate gap that has been weighing on the Canadian dollar.
Outlook
The combination of a lagging services sector, softer crude prices and a persistent Canada-U.S. interest-rate differential limited the loonie’s ability to mount a more decisive recovery after several weeks of weakness. Market participants continued to show caution toward Canadian assets amid these cross-currents.