The Canadian dollar strengthened against the U.S. dollar on Thursday, supported by rising oil prices and a narrowing gap between Canadian and U.S. government bond yields. The currency recovered slightly from an 18-month low as investors awaited Canada’s latest employment figures.
The loonie gained 0.1% to trade at C$1.4245 per U.S. dollar, equivalent to 70.20 U.S. cents, according to Reuters. Earlier this week, the currency fell to C$1.4293, its weakest level since April 2025.
Narrowing Bond Yield Gap Supports Canadian Dollar
A smaller difference between Canadian and U.S. government bond yields helped ease pressure on the Canadian dollar.
Earlier in the week, the yield gap had reached historically wide levels, making U.S. assets more attractive to investors. However, the recent narrowing of that gap has offered the loonie some relief.
Meanwhile, investors continue to monitor interest rate expectations in both countries, as monetary policy differences remain an important driver of currency movements.
Oil Prices Rally Amid Middle East Supply Concerns
Higher crude oil prices provided additional support for the Canadian dollar, given Canada’s position as a major energy exporter.
Brent crude briefly climbed above $100 per barrel on Thursday as fears of supply disruptions in the Middle East intensified.
However, oil prices later retreated from their session highs. The pullback followed comments from U.S. President Donald Trump, who said Washington would not launch an attack on Iran before the November midterm elections.
Despite the recovery, the Canadian dollar remains exposed to elevated U.S. bond yields and uncertainty surrounding future Federal Reserve decisions.
Minutes from the Fed’s latest policy meeting highlighted ongoing inflation concerns. Officials also left the possibility of additional interest rate increases open later this year.
Canada Employment Report Could Drive the Loonie’s Next Move
Attention now shifts to Canada’s September employment report, scheduled for release on Friday.
The figures could influence expectations for the Bank of Canada’s next monetary policy decisions and determine the Canadian dollar’s near-term direction.
The upcoming report carries additional significance after Canadian employment declined sharply in August, while the unemployment rate remained unchanged at 6.4%.
Stronger-than-expected employment figures could provide further support for the loonie. Conversely, weaker data may revive concerns about Canada’s economic outlook and place renewed pressure on the currency.
