Canadian dollar hits 4-1/2-year low as yield spread weighs
Canadian dollar falls 0.2% against the greenback
Touches a 4-1/2-year low at 1.4199
Price of U.S. oil decreases 0.2%
Bond yields rise across the curve
By Fergal Smith
TORONTO, Dec 12 (Reuters) -The Canadian dollar weakened to a 4-1/2-year low against its U.S. counterpart on Thursday as the greenback notched broad-based gains and a recent widening in the gap between U.S. and Canadian bond yields weighed on the loonie.
The Canadian currency CAD= was trading 0.2% lower at 1.4190 per U.S. dollar, or 70.47 U.S. cents, after touching its weakest since April 2020 at 1.4199.
"The Canadian dollar's weakness is partly a function of the broad U.S. dollar strength," said Marc Chandler, chief market strategist at Bannockburn Global Forex LLC.
"I have also noticed that there is a stronger relationship, it's more sensitive, to the U.S.-Canadian 2-year interest rate differential."
The U.S. dollar .DXY rose for a fifth straight day against a basket of major currencies after a hotter than expected U.S. inflation readout and the European Central Bank's decision to cut interest rates for the fourth time this year.
The Bank of Canada's easing campaign has been even more aggressive. On Wednesday, the central bank slashed its benchmark interest rate by half a percentage point to 3.25%.
Canada's 2-year yield has fallen this week as much as 126 basis points below its U.S. counterpart, the largest gap since November 1997.
"As the Canadian dollar has weakened, people chase returns. People are getting more bearish as the Canadian dollar as it falls," Chandler said.
Speculators have raised their bearish bets on the Canadian dollar to historically large levels, data from the U.S. Commodity Futures Trading Commission shows. 1090741NNET
The price of oil CLc1, one of Canada's major exports, fell 0.2% to $70.18 a barrel after a forecast for ample supply in the market.
Canadian bond yields moved higher across the curve, tracking moves in U.S. Treasuries. The 10-year CA10YT=RR was up 4.8 basis points at 3.135%.
Reporting by Fergal Smith;
Editing by Alistair Bell
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