The Canadian dollar sank to its weakest level against the U.S. dollar since mid-July on Friday, touching 1.4150, as a widening interest-rate gap between the two countries pushed investors toward U.S. bonds, according to currency analysis published by FXStreet.
The exchange rate, watched closely by anyone who shops online from U.S. retailers, books a trip south of the border or buys imported goods, means it now takes roughly $1.42 Canadian to buy a single U.S. dollar. The loonie has fallen in 12 of its last 13 trading sessions, a slide that began after Canada imposed counter-tariffs on $27.6 billion worth of American goods on Sept. 8, FXStreet reported.
The main driver, according to the analysis, is the growing distance between Canadian and U.S. borrowing costs. The Bank of Canada has held its key rate at 2.25 per cent, while the U.S. Federal Reserve’s benchmark sits at 3.75 to 4 per cent. Canada’s 10-year government bond yield was trading around 3.95 per cent Friday, versus about 5.2 per cent in the United States, a gap of roughly 1.25 percentage points that makes American bonds more attractive to global investors and, in turn, boosts demand for U.S. dollars.
“When the two-year yield spread between the Canadian and U.S. government bonds is increasingly negative, the price of oil is decreasing and the U.S. dollar is increasing, it is very difficult for the Canadian dollar to perform well,” market commentator Brooke Thackray wrote in an analysis published Thursday by BNN Bloomberg. Thackray pointed to a second straight month of narrowing yield spreads, an oil price pullback after a mid-September rally, and the U.S. Dollar Index climbing back above the closely watched 100 level as three separate headwinds working against the loonie at once.
For a currency that usually rises and falls with the price of oil, Canada’s biggest export, the disconnect is notable. Brent crude has actually gained more than 15 per cent so far this month, yet the loonie has kept sliding regardless, FXStreet noted, a sign that interest-rate expectations and trade tensions are currently overpowering the usual playbook.
The timing matters for Canadian households already adjusting their cross-border habits. Statistics Canada reported in July that return trips from the United States remained near the reduced levels first recorded in late 2025, after what the agency described as an abrupt shift in Canadian travel sentiment following the change in U.S. administration and the rollout of “America First” trade policies in early 2025. A weaker loonie raises the cost of every one of those remaining trips, along with anything priced in U.S. dollars, from streaming subscriptions to cross-border online orders, at a moment when the trade war is already squeezing household budgets through the counter-tariffs Ottawa imposed this month.
Both central banks are scheduled to announce their next rate decisions on the same day, Oct. 28, with the Bank of Canada expected at 9:45 a.m. ET and the Federal Reserve later that afternoon. A Bank of Canada rate increase would narrow the policy gap driving the loonie lower, but the central bank has been reluctant to raise rates while the trade war with the United States weighs on economic growth, according to the bank’s own September rate announcement. That leaves currency traders, and anyone with a U.S. dollar purchase to make before the end of October, watching the same date for opposite reasons: a signal of relief for the loonie, or confirmation the slide has further to run.
Via FXStreet and BNN Bloomberg.
