The Canadian dollar pulled back from an 18-month low on Thursday as a narrowing Canada-U.S. bond yield gap and a brief oil rally supported the loonie. USD/CAD is testing its 200-hour moving average, and traders are now watching Canada's September employment report, due Friday, for direction.
The Canadian dollar edged higher against the U.S. dollar on Thursday, recovering from an 18-month low as a narrowing gap between Canadian and U.S. bond yields eased pressure on the currency. The loonie traded 0.1% higher at C$1.4245 per U.S. dollar, or 70.20 U.S. cents. It had touched C$1.4293 on Monday, its weakest level since April 2025.
Oil rally and narrower yield gap support the loonie
The yield differential between Canadian and U.S. government bonds narrowed from historically wide levels earlier this week, reducing some of the pressure on the Canadian currency. Oil also lent support: Brent crude surged above $100 a barrel earlier in the session as concerns over disruptions to Middle Eastern supplies intensified, though prices later pared gains after President Donald Trump said Washington would not attack Iran before the November midterm elections.
Still, the loonie remains vulnerable to elevated U.S. yields and expectations that the Federal Reserve could raise interest rates again later this year. Minutes from the Fed's latest meeting showed inflation remained a key concern, and policymakers kept open the possibility of further tightening.
Canada's short-end yields lead gains
Canadian government bond yields edged higher on Thursday, with the short end of the curve leading gains. The Canada two-year yield rose 1.9 basis points to 3.261%, while the 10-year yield added 0.5 basis point to 3.953%. The larger move at the short end flattened the curve slightly, suggesting investors are adjusting expectations for the near-term policy path.
USD/CAD sellers test the 200-hour average
Sellers are scoring short-term wins on the charts. The pair stalled against a topside trendline at session highs on consecutive days, then broke below its 100-hour moving average at 1.42488. That opened the door to a test of the 200-hour moving average at 1.4227. A sustained break below that level would strengthen the bearish case and open a path toward swing support near 1.4200; a reclaim of 1.42488 would hand control back to buyers.
Investors are now turning to Canada's September employment report, due Friday, for clues on the Bank of Canada's policy outlook. The data carries added weight after Canadian employment fell sharply in August while the unemployment rate held at 6.4%.
Sources: Investing.com, Investing.com, investingLive
Trading involves risk.
Risk Disclaimer
