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Canadian Dollar Hits 8-Day Low Amid Global Economic Uncertainty

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By: Nimrah Khatoon
Canadian Dollar Hits 8-Day Low Amid Global Economic Uncertainty

The Downward Trend of the Canadian Dollar

The Canadian dollar hit an eight-day low against the US dollar on September 26, 2021, marking a crucial point in the currency’s recent history. The Canadian dollar was valued at 0.5% lower at 1.3518 to the US dollar, which is equivalent to 73.98 US cents. This marked the weakest level for the Canadian dollar since September 18, 2021, when it dipped to 1.3528. This downward trend has raised concerns among investors and economic analysts, as the country grapples with an uncertain global economic environment.

Investor Sentiment and Economic Indicators

The downturn in investor sentiment has significantly contributed to the weakening of the Canadian dollar. This decline comes despite August data showing improvements in the country’s economy, with increases in wholesale trade by 2.6% and factory sales rising by 1%. The investor sentiment is influenced by several factors, among them the performance of the US economy and the monetary policy of the Federal Reserve. For nearly two months, the US dollar has been on a strong upward trajectory, with Wall Street’s main indexes falling and the US dollar making gains against major currencies.

Impact of the Global Economic Environment

The Canadian economy, heavily reliant on commodities such as oil, is sensitive to shifts in the global economic environment. The price of oil rose by 0.8% to $90.39 a barrel due to expectations of a tighter supply, reflecting the dynamics of the global oil market. Moreover, the GDP data for July is expected to provide more insights into the state of the Canadian economy, offering more context for the performance of the Canadian dollar.

Canadian Bonds and Treasury Yields

The performance of the Canadian dollar is also linked to the country’s treasury yields and bond market. The Canadian 10-year yield increased by 2 basis points to reach 4.046%, the highest since December 2007, following similar moves in US Treasuries. Furthermore, Canada has raised the annual limit for the issuance of Canada Mortgage Bonds from C$40 billion to C$60 billion, allocating the additional funds to mortgage loans on multi-unit rental projects insured by the Canada Mortgage and Housing Corporation. This move signifies the government’s efforts to stimulate the economy and manage the country’s debt.

Conclusion

The weakening of the Canadian dollar against the US dollar reflects the volatility and uncertainty of the current global economic environment. Despite positive economic indicators such as increased wholesale trade and factory sales, investor sentiment remains cautious due to various external factors. As the world continues to navigate the impact of global economic uncertainties, the performance of the Canadian dollar will be a key factor to watch.

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