The Canadian dollar CADUSD tumbled to its lowest level in more than two years against its broadly stronger U.S. counterpart on Monday as investors worried that rising borrowing costs globally could tip major economies into recession.
The loonie was trading 1.1% lower at 1.3740 to the greenback, or 72.78 U.S. cents, after touching its weakest level since May 2020 at 1.3808.
“Given the huge increase in yields in North America and Europe, there is a growing sense that recession might be coming to North America as well as Europe,” said Michael Goshko, senior market analyst at Convera Canada ULC.
“That kind of situation is never going to be good for the Canadian dollar.”
The U.S. 10-year yield, a major benchmark for long-term borrowing costs, jumped 18 basis points to 3.880%, its highest level in more than 12 years, while the U.S. dollar climbed against a basket of major currencies and Wall Street slid further into bear market territory.
Canada’s 10-year yield was up 14 basis points at 3.210%.
Canada is a major producer of commodities, including oil, so the loonie tends to be sensitive to shifts in investor sentiment. U.S. crude oil futures extended their recent decline to settle 2.6% lower at $76.71 a barrel.
Inflation is too high in Canada, so the Bank of Canada needs to increase interest rates to slow spending and give the economy time to catch up, Governor Tiff Macklem said in a video posted by the central bank on Twitter.
The BoC has tightened by 300 basis points since March, lifting its policy rate to a 14-year high of 3.25%. Money markets expect rates to move up by another three-quarters of a percentage point by the end of the year.
Canadian wholesale trade rose 0.8% in August from July, a preliminary estimate from Statistics Canada showed.