Loonie gains as US dollar weakens after Fed decision
The Canadian dollar strengthened on Thursday, reaching its highest level in six weeks against the US dollar as broad weakness in the greenback continued following the Federal Reserve’s decision to keep interest rates unchanged.
The loonie rose 0.4% to 1.3993 per US dollar, equivalent to 71.46 US cents, marking its strongest intraday level since June 17.
Fed decision weighs on US dollar
The US dollar declined against a basket of major currencies after investors reassessed the Federal Reserve’s approach to inflation and future interest rate decisions.
Market uncertainty increased after the Fed maintained its current policy stance, with traders questioning whether the central bank remains committed to keeping inflation under control under its new leadership.
Sebastien Mc Mahon, chief economist at iA Financial Group, said markets are already applying some tightening pressure through financial conditions, despite the Fed holding rates steady.
He noted that shorter-term bond markets suggest a reduced likelihood of a September rate increase, while longer-term yields indicate concerns that the Federal Reserve may be falling behind inflation risks.
Bond yields and oil prices influence Canadian markets
The yield on the US 30-year Treasury bond climbed to 5.244%, reaching its highest level since 2007 as investors continued to evaluate the future path of monetary policy.
Oil prices, an important factor for the Canadian economy due to the country’s energy exports, edged lower by 0.3% to $84.22 per barrel as markets considered plans for a Saudi Arabia-led maritime coalition aimed at strengthening security cooperation in the Red Sea.
Canadian employment data shows continued growth
Domestic economic data showed that Canadian payroll employment increased by 24,100 positions in May, representing a 0.1% rise. This followed a larger increase of 59,000 jobs in April.
The employment figures provided additional insight into the resilience of the Canadian labour market despite ongoing economic uncertainty.
Canadian bond yields decline
Canadian government bond yields moved lower across the curve following the market reaction to the Federal Reserve’s decision.
The 10-year Canadian government bond yield declined 1.9 basis points to 3.578%. The spread between Canadian and US 10-year yields widened to approximately 109 basis points, the largest gap since May 25.
