CAD hits 4-week low

CAD hits 4-week low

Canadian Dollar Weakened as Fitch Downgrades US Credit Rating

In a surprising turn of events, the Canadian dollar has weakened to a near four-week low against the US dollar. The catalyst for this decline was Fitch’s decision to downgrade the US government’s credit rating from AAA to AA+. This move has ignited a selloff in risk-sensitive currencies, leaving investors concerned about the stability of global markets.

As news of the credit downgrade spread, Wall Street stocks took a hit, and the safe-haven US dollar saw a rise against a basket of major currencies. The downgrade, coupled with data showing a larger-than-expected increase in US private payrolls for July, has created a favorable environment for the greenback.

The Canadian dollar, often referred to as the “loonie,” is particularly sensitive to risk appetite due to Canada’s status as a major producer of commodities, including oil. As a result, the decline in the value of oil has amplified the negative impact on the loonie. Oil prices have retreated, settling 2.3% lower at $79.49 a barrel.

“It’s like a bad hair day for Canada,” quipped Marc Chandler, chief market strategist at Bannockburn Global Forex LLC. “Everything that could go wrong with the loonie is going wrong today.” Chandler’s vivid metaphor captures the turbulent state of the Canadian economy as it grapples with external events.

At present, the Canadian dollar is trading 0.5% lower at 1.3342 to the greenback, reaching its weakest intraday level since July 7 at 1.3348. This depreciation has raised concerns among investors who are anxiously awaiting the release of Canadian jobs data on Friday. The upcoming employment report will provide vital clues about the strength of the domestic economy and whether it can weather the storm caused by the downgrade.

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In addition to currency fluctuations, Canadian government bond yields have responded mixedly across a steeper curve, mirroring the movements in US Treasuries. The 10-year bond yield reached its highest point since July 10 at 3.652% before slightly lowering to 3.606%, representing an increase of almost one basis point for the day.

All eyes are now on Friday’s Canadian jobs data, which, according to ANBLE’s forecast, is expected to reveal a gain of 21,100 jobs. This report will offer valuable insights into the resilience of the Canadian economy and its ability to navigate through the uncertainties brought on by the credit downgrade.

As the Canadian dollar faces its share of challenges, investors and analysts will closely monitor its performance in the coming days. With the global economic landscape evolving rapidly, a multitude of factors, including the performance of the US economy and commodity prices, will influence the loonie’s future trajectory.

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