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The Canadian dollar weakened to a one-week low against the U.S. dollar following stronger-than-expected U.S. jobs data, diminishing the likelihood of the Federal Reserve cutting interest rates. The loonie traded 0.6% lower at 1.3460 to the greenback, reaching its lowest level since the previous Friday at 1.3475. For the week, the currency was down 0.1%.
The robust U.S. jobs report has dampened expectations of a Fed rate cut in March and even cast doubts on a potential cut in May. This boosted Treasury yields and the U.S. dollar, contributing to the Canadian dollar’s decline. Simon Harvey, Head of FX Analysis for Monex Europe and Monex Canada, noted that the strong U.S. data, combined with stretched long positioning in the Canadian dollar, left the loonie vulnerable to a correction lower.
While Canada’s economy showed signs of outperforming expectations in Q4 2023, the impact of the strong U.S. economic data weighed on the Canadian dollar. Canadian government bond yields rose across the curve, following the trend in U.S. Treasuries, with the 10-year yield up 11.7 basis points at 3.388%.
