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Published: September 24, 2026 at 8:53a.m. EDT The Canadian dollar versus the U.S. dollar has three strikes against it, driving it lower. Among the many factors driving the value of the Canadian dollar, three major ones point to further weakness.
Strike one The spread on the yield between two- year Canadian and U.S. government bonds is becoming increasingly negative. The blue line in the chart below has been moving lower since early August. The two-year yield has been moving higher in both countries recently as expectations of further central bank tightening have increased.
The yield on two-year Canadian government bonds has been increasing at a slower rate than the yield on U.S. government bonds, which is represented by a downward-trending blue line. The Bank of Canada has a difficult task at this time. The Canadian economy has been much weaker than the U.S. economy, but there are inflation threats that have to be recognized.
The Canadian economy has a much larger representation from the real estate sector compared to the U.S. Given the sensitivity of rising rates on the real estate sector, the Bank of Canada has to be very cautious about increasing rates. At this time, the two-year spread has decreased much faster than the value of the Canadian dollar (red line), indicating possible further weakness ahead for the Canadian dollar.
Two-year bond yield spread Strike two One of the major drivers of the Canadian dollar is the price of oil. Canada is a net exporter of oil. When Canada runs a trade surplus, it is mainly the result of oil exports.
When the price of oil increases, it tends to boost the value of the Canadian dollar and vice versa. After a strong rally from early July, the price of oil has been decreasing (blue line in graph below) since mid-September. The U.S.-Iran war is a major determinant of the price of oil.
It is very difficult to forecast what is happening in this area; nevertheless, oil has been moving lower, which in turn is pushing the value of the Canadian dollar lower. West Texas Intermediate Strike three When the U.S. dollar is heading higher against a basket of major world currencies, the Canadian dollar tends to move lower. The U.S. dollar has been rising relative to world currencies (blue line) and has now crossed above the critical 100 level for the DXY that many international traders follow.
As the U.S. dollar heads higher relative to world currencies, this is putting downward pressure on the Canadian dollar. USD vs World Currencies After the Canadian dollar performed well from June until August, many investors expected the trend to continue. Circumstances have changed.
Three of the major drivers of the value of the Canadian dollar have turned negative. When the two-year yield spread between the Canadian and U.S government bonds is increasingly negative, the price of oil is decreasing and the U.S. dollar is increasing, it is very difficult for the Canadian dollar to perform well. Investors should be prepared for further Canadian dollar weakness.
The views and opinions expressed herein are solely those of the author(s) and may not necessarily reflect the views of Global X Investments Canada Inc. All comments, opinions and views expressed are generally based on information available as of the date of publication and should not be considered advice to purchase or sell any securities mentioned. Before making any investment decision, please consult your investment advisor or advisors.
Source: BNN Bloomberg
