C$ drops to new low as economy slows

The Canadian dollar faced pressure on Tuesday as it weakened to a three-week low against its U.S. counterpart. The greenback experienced broad-based gains, and data revealed a slowdown in Canada’s manufacturing sector for the third consecutive month.

The loonie traded 0.8% lower at 1.3293 against the U.S. dollar, reaching its weakest intraday level since July 10 at 1.3300. According to Adam Button, chief currency analyst at ForexLive, the U.S. dollar is reestablishing itself as the dominant currency in the market, while the Canadian dollar is being caught in the wave. He noted that cracks are beginning to show in the Canadian economy, while the U.S. remains relatively stable.

The U.S. dollar received support from positive data on manufacturing and construction, contrasting with the global trend of factory activity remaining sluggish in July.

In Canada, S&P Global’s measure of manufacturing activity inched higher to 49.6 last month from 48.8 in June. However, any reading below 50 indicates contraction in the sector, and it has been below that level since May. Additionally, preliminary data from Friday revealed that the Canadian economy contracted by 0.2% in June.

Economists are closely watching the employment report for July, set to be released on Friday, as it could provide further insights into the strength of domestic activity. The consensus among economists is a forecast of a 21,100 job gain.

The price of oil, a major export for Canada, experienced a slight decline, driven by profit-taking after a rally in July. U.S. crude oil futures were down 0.3% at $81.57 per barrel.

Canadian government bond yields mirrored the movements in U.S. Treasuries, resulting in climbing yields across the curve. The 10-year bond yield rose 10.7 basis points to 3.609%.