The Canadian dollar gave back an early advance against the U.S. dollar on Monday as falling oil prices and a persistent Canada-U.S. interest-rate gap kept pressure on the currency. The loonie remains close to the 18-month low it touched last week, while a fourth straight month of contraction in Canada's services sector added a domestic headwind.
The loonie traded around C$1.4258 per U.S. dollar at about 10:02 a.m. ET, compared with a previous close near C$1.4251. The currency had earlier strengthened to around C$1.4238 before giving up those gains, while the session high stood near C$1.4294.
Oil and the rate gap keep pressure on
The move leaves the Canadian dollar close to the levels it reached late last week, when it touched an 18-month low as widening interest-rate differentials and weaker oil prices weighed on the commodity-linked currency. According to Reuters: "the loonie fell for a fourth straight week last week, losing about 0.8%"
Oil provided another drag on Monday. U.S. crude futures fell about $1.10 to roughly $90 a barrel, and Canadian equities echoed the cautious tone, with the S&P/TSX Composite Index opening 0.2% lower at 35,449.39, energy shares leading the decline. Canadian benchmark bond yields moved higher even so, with the 10-year yield around 3.98%, though the comparable U.S. yield remained substantially higher.
Services sector contracts for a fourth month
Signs of persistent weakness in Canada's services economy added to the pressure. The sector contracted for a fourth straight month in September, even as the pace of deterioration moderated: the S&P Global Business Activity Index improved to 48.3 from 46.8 in August, but remained below the 50 threshold separating expansion from contraction.
The details still pointed to pressure on demand. New business remained in contraction for a fifth month, and export orders deteriorated more sharply while input costs accelerated. Tariffs and uncertainty around the war in Iran were among the factors weighing on activity and raising costs. The broader composite PMI rose to 48.7 from 47.8 but also stayed in contraction.
Source: Forex News
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