The Canadian dollar continues to be pummeled by broader global economic factors, namely a surprisingly resilient US economy and higher government bond yields. This has resulted in the USD/CAD hitting multi-week lows this week.
US economic data continued to surpass analyst estimates, underscoring a widening economic disparity between the US and much of the rest of the developed world. The most striking data were the latest growth figures: GDP increased by 4.9% during Q3 on a preliminary basis. This growth surpassed expectations that had predicted a rise of 4.2% for the period. The rationale is that stronger economic data reduces the likelihood of Fed rate cuts. Due to this reduced risk appetite, investors are more inclined to purchase US dollars as a safe haven.
10-Year U.S. Treasury yields surpassed 5% early this week for the first time in 16 years and are currently hovering just below that mark. While various factors influence bond yields, a common interpretation of rising yields is the expectation of higher inflation or potential monetary policy tightening by central banks. Furthermore, these higher yields on U.S. Treasuries can lure global investors, thereby boosting demand for the US dollar. In periods of economic uncertainty, both the US dollar and U.S. Treasuries often serve as “safe haven” assets, drawing in increased investment.
We anticipate further weakening of the Canadian dollar against the US dollar. For those selling US dollars, we see value above 1.375 (USD/CAD) and 1.387 (USD/CAD) when converting from CAD to USD.
The Canadian dollar is currently trading at 1.3872 CAD against the US Dollar.
