Canadian Dollar Hits Seven-Month Low Amid Widening Yield Spreads

Canadian Dollar Falls to Seven-Month Low Against Greenback

TORONTO, Jan 11 (Reuters) - The Canadian dollar weakened to a seven-month low against the greenback on Thursday, before recovering some of its decline. The loonie was trading 0.3% lower at 1.3980 per U.S. dollar, or 71.53 U.S. cents, after earlier touching its weakest level since November at 1.4023.

The Canadian dollar's decline is largely attributed to the widening gap between Canadian and U.S. 2-year yields. The Canadian 2-year yield fell as much as 131 basis points below the equivalent U.S. rate, marking the largest gap since June 2025, before recovering to about 128 basis points. This significant gap is primarily driven by interest rate spreads, weak domestic data over the last several weeks, and a more dovish Bank of Canada.

The Bank of Canada left its benchmark interest rate unchanged at 2.25% for a fifth straight time on Wednesday. The central bank stated that it was seeing limited evidence that higher energy prices were fueling broad-based inflation. Despite this, data on Friday showed that Canada's economy added 87,800 jobs and the unemployment rate fell to 6.6% in May, wiping out much of the job declines since the start of the year.