Canadian dollar tumbles to five-year low as Fed guidance strengthens greenback

Investors sought protection against further declines in the loonie, which was trading 0.9% lower at 1.4440 to the U.S. dollar, or 69.25 U.S. cents.

The Canadian dollar slid to its lowest level in nearly five years against the U.S. dollar on Wednesday, as hawkish guidance from the Federal Reserve propped up the greenback, prompting investors to snap up protection against further declines in the loonie.

The loonie was trading 0.9% lower at 1.4440 to the U.S. dollar, or 69.25 U.S. cents, marking its weakest intraday level since March 2020.

The U.S. dollar soared against a basket of major currencies after the Fed delivered a widely anticipated interest rate cut, while also signaling a slower pace for its monetary policy easing cycle.

“We knew it was going to be a hawkish cut today. … It’s uber-hawkish,” said Erik Bregar, director of FX & precious metals risk management at Silver Gold Bull.

“Nobody likes it. Stocks don’t like it, bonds don’t like it, precious metals don’t like it, the risk-sensitive Canadian dollar doesn’t like it. The only thing up is the U.S. dollar.”

The Canadian dollar has also been battered by domestic political uncertainty, the ongoing threat of U.S. trade tariffs, and the Bank of Canada’s aggressive interest rate cuts, which have put pressure on the currency in recent months.

As a result, demand for protection against a further decline in the loonie has surged.

“Demand for protection against a downside move in the loonie has soared,” said Karl Schamotta, chief market strategist at Corpay.

Implied volatility on Canadian dollar options hit its highest level since April 2023, climbing to about 6.6.

Meanwhile, Canadian bond yields were higher across the curve, tracking the moves in U.S. Treasuries. The 10-year yield rose 8.2 basis points to 3.224%.