Canadian dollar hits multi-year low on hawkish Fed

Canadian dollar falls 0.9% against the greenback

Touches its weakest since March 2020 at 1.4444

CAD 3-month implied volatility rises to 6.6

Canadian bond yields rise across the curve

(Updates prices and details on activity)

TORONTO, Dec 18 (Reuters) – The Canadian dollar tumbled to a near five-year low against its U.S. counterpart on Wednesday as hawkish guidance from the Federal Reserve boosted the greenback and investors sought protection against additional losses for the Canadian currency.

The loonie was trading 0.9% lower at 1.4440 to the U.S. dollar, or 69.25 U.S. cents, after touching its weakest intraday level since the onset of the COVID-19 crisis in March 2020 at 1.4444.

The U.S. dollar jumped against a basket of major currencies after the Fed delivered a widely expected interest rate cut while also indicating it would slow the pace of its monetary policy easing cycle.

“We knew it was going to be a hawkish cut today. … It’s uber-hawkish,” said Erik Bregar, director, 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, the risk-sensitive Canadian dollar doesn’t like it. The only thing up is the U.S. dollar.”

Domestic political uncertainty has weighed on the Canadian currency in recent days, joining the threat of U.S. trade tariffs and the Bank of Canada’s aggressive interest rate cutting campaign as headwinds for the currency.

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

Implied volatility on an at-the-money options contract to buy or sell Canadian dollars against the U.S. dollar in three months climbed to roughly 6.6, its highest level since April 2023. It was 4.5 in July.

Investors and companies use options to hedge their currency exposure. The currency touched a low of 1.4667 in March 2020.

Canadian bond yields rose across the curve, tracking moves in U.S. Treasuries. The 10-year was up 8.2 basis points at 3.224%. (Reporting by Fergal Smith; Editing by Chizu Nomiyama and Jonathan Oatis)