FX.co ★ Canadian Dollar Trims Yearly Gains

The Canadian dollar dipped below 1.37 per US dollar, retracting from its peak since July. This decline is attributed to indications of slowing domestic growth, decreasing Canadian bond yields, and worsening trade conditions, which have collectively diminished Canada’s yield and income advantages. Additionally, a strengthening US dollar towards year-end has redirected capital flows back to US assets. Statistics Canada revealed a 0.3% decrease in real GDP for October, highlighting a slowdown as the fourth quarter commenced. This development undermines the prospect of Canadian policy performing better relative to the US. Furthermore, Canada's commodity terms of trade have weakened due to a significant drop in crude oil prices throughout the year, reducing export revenues and foreign exchange inflows. Concurrently, Canadian 10-year bond yields have fallen to the lower 3% region, contrasting with US yields that remain near the lower 4% mark, widening the yield spread and making US dollar-denominated assets more attractive. This currency movement reverses part of the approximately 4.8% appreciation achieved earlier this year.