The Canadian dollar weakened further against its US counterpart on Friday, January 2, 2026, adding to its losses for the week. The currency's decline came as fresh economic data confirmed the country's manufacturing sector remained in a prolonged slump.
Loonie's Weekly Slide Amid Economic Headwinds
The loonie, as the Canadian dollar is known, was trading 0.1% lower at 1.3740 per US dollar, which is equivalent to 72.78 US cents. During the session, it moved between 1.3701 and 1.3747. For the entire week, the currency was on track for a 0.5% decline. This contrasted with its performance for the full previous year, where it had gained a notable 4.8%.
Economists from TD Economics, including Andrew Hencic, noted in a report that Canada's economy is entering 2026 under pressure. "Canada’s economy starts 2026 under a cloud as underlying domestic demand remains weak," they stated. The report highlighted that while gains in resource, metals, and agricultural trade have offset some losses, key manufactured goods continue to face significant tariff challenges in trade with the United States.
Manufacturing Contraction Persists for 11th Month
The primary domestic factor weighing on the currency was the latest Purchasing Managers' Index (PMI) data for the manufacturing sector. The S&P Global Canada Manufacturing PMI showed a marginal improvement to 48.6 in December from 48.4 in November. However, this marked the 11th consecutive month the index has remained below the critical 50.0 threshold, indicating ongoing contraction. The sector has not seen a reading above 50, which signifies growth, since February of the previous year.
External market factors also played a role. The price of oil, a major Canadian export, fell 0.7% to $57.00 a barrel. Investors balanced concerns about global oversupply against rising geopolitical risks. Simultaneously, the US dollar began 2026 on a stronger footing after a challenging 2025. Traders were positioning themselves ahead of key US economic data releases scheduled for the following week, including several reports on the labor market, which are crucial for forecasting the future path of interest rates.
Bond Yields Climb Following US Treasury Moves
The broader financial market movement was reflected in Canadian government bonds. Yields moved higher across the curve, mirroring the trend in US Treasury markets. Notably, the 10-year Canadian government bond yield rose by 3.7 basis points to reach 3.472%.
The combination of persistent domestic industrial weakness and a resurgent US dollar has created a challenging environment for the Canadian currency at the start of the new year. Market participants will closely monitor upcoming domestic data and global commodity price trends for further direction.
