The Canadian dollar weakened toward 1.44 per USD, approaching the January 2016 low of 1.445, driven by diverging monetary policies, weak domestic data, and geopolitical uncertainties. The Bank of Canada's aggressive rate cuts, with a 25 bps reduction expected this month, contrast with a less dovish Federal Reserve, contributing to a widening yield gap between US and Canadian government bonds that draws capital toward the greenback, intensifying pressure on the loonie. Domestically, a sharper-than-expected 13.35% drop in December housing starts signals economic softness. Meanwhile oil prices, losing momentum after their recent rise, weigh on Canada's export revenue and dampen demand for the currency. Additionally, fears of significant US tariffs under the incoming Trump administration heighten trade uncertainty, threatening both economic growth and inflation stability.
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