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…
