The Canadian dollar fell to a 14-month low against the U.S. dollar on Thursday as markets reacted to a firmer stance from the Federal Reserve that pushed U.S. interest-rate expectations higher and widened the yield differential between U.S. and Canadian government debt.
The loonie was trading 0.3% weaker at 1.4135 per U.S. dollar, equivalent to 70.75 U.S. cents, after slipping to an intraday trough of 1.4146 - its weakest level since April 2025.
"Every major currency is down against the greenback as traders ignore domestic developments and follow rate differentials," Karl Schamotta, chief market strategist at Corpay, said in a note. The U.S. dollar extended gains from the prior session against a basket of major currencies as investors increased bets that the Fed will raise interest rates this year.
That shift in expectations translated into a wider gap between two-year yields. Canada’s two-year yield moved 3.1 basis points further below its U.S. counterpart, pushing the spread out to 137 basis points - the widest differential since May 2025.
Market participants also pointed to softening oil prices and lingering trade uncertainty as additional headwinds for the Canadian dollar. Oil, a major export for Canada, fell to its lowest levels since before the start of the Iran war at the end of February after an interim deal that aims to halt fighting, reopen the Strait of Hormuz and ease sanctions on Tehran improved the global supply outlook.
Trade uncertainty was underscored by comments from U.S. President Donald Trump on Wednesday, who said the United States would fare better without the U.S.-Mexico-Canada Agreement and that he would prefer not to have a new one, while also saying he remained open to negotiating a deal.
Taken together, stronger dollar momentum driven by U.S. rate expectations, a widened U.S.-Canada yield gap, weaker oil prices and trade-related remarks combined to weigh on the Canadian dollar over the session.