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Canadian Dollar Hits Low on USMCA Trade Review Concerns, US Dollar Gains From More Hawkish Fed Perception, Says BMO

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The Canadian dollar on Thursday fell to 70.7 US cents, or above $1.413/US dollar, its lowest ebb in more than a year, said Bank of Montreal (BMO) late Thursday.

The US dollar has broadly strengthened against major currencies in recent days as market expectations for the Federal Reserve policy have shifted in a more hawkish direction following Chair Kevin Warsh's first Federal Open Market Committee (FOMC) meeting, BMO added. At the same time, the greenback has benefited from robust capital inflows linked to the technology sector's continued expansion.

On the other hand, the Canadian dollar remains particularly "on the defensive," BMO Chief Economist Douglas Porter wrote. On a broader view, the loonie continues to struggle, recently hovering near its weakest level against the euro since 2009.

BMO added that a key factor weighing on the Canadian dollar is the uncertainty surrounding the future of the United States-Mexico-Canada Agreement (USMCA), or CUSMA as the trade agreement is known in Canada.

Meanwhile, lower oil prices have provided an additional, although mild, headwind for the Canadian dollar, according to Porter. However, the loonie's response to energy markets has been notably muted as, despite the strong rally in crude prices earlier this year as a result of the Middle East conflict, the Canadian currency got little support from those upswings.

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