Loonie edges higher as yield spreads compress

The Canadian dollar edged higher against its U.S. counterpart on Thursday as the gap between U.S. and Canadian yields narrowed from the historically wide levels seen earlier in the week and as investors awaited Canada’s monthly employment report.

The loonie was trading 0.1 per cent higher at 1.4245 per U.S. dollar, or 70.20 U.S. cents, after touching on an 18-month low of 1.4293 on Monday.

“It’s trying to bounce,” said Erik Bregar, director of FX and precious metals risk management at Silver Gold Bull. “I think the driver today has been the compression in the two-year yield spread.”

Canada’s two-year yield was trading about 152 basis points below the U.S. equivalent. On Monday, the gap was 158 basis points, its widest since February 2025.

A higher yield tends to increase the attractiveness of a currency.

The price of oil, one of Canada’s major exports, jumped on persistent worries about supply from the Middle East amid an increase in attacks on shipping in the Gulf and the Strait of Hormuz. U.S. crude oil futures were trading 3.1 per cent higher at US$91.02 a barrel.

Canadian employment data for September, due on Friday, could offer clues on the state of Canada’s economy after a recent intensification of trade uncertainty. Economists expect a gain of 9,200 jobs and the unemployment rate to edge up to 6.5 per cent from 6.4 per cent in August.

U.S. Trade Representative Jamieson Greer said the U.S. is sticking to its stance in trade talks with Canada, adding that a recent election in the Canadian province of Quebec is preoccupying Ottawa.

Canadian government bond yields were mixed across a flatter curve. The 10-year was down 1.2 basis points at 3.936 per cent, remaining below the 3-year high it touched last week at 4.042 per cent.