CANADA FX DEBT-Canadian dollar heads for second straight weekly decline as volatility cools

By Fergal Smith

TORONTO, Sept 12 (Reuters) - The Canadian dollar edged lower against its U.S. counterpart on Friday and a market measure of expected volatility slumped to its lowest level in one year, as investors awaited next week's interest rate decisions by the Bank of Canada and the Federal Reserve.

The loonie CAD= was trading 0.1% lower at 1.3845 per U.S. dollar, or 74.23 U.S. cents, after moving in a range of 1.3832 to 1.3863. For the week, the currency was down 0.1%, which would be its second straight weekly decline.

"I feel like we are just in a phase of consolidation," said Sarah Ying, head of foreign exchange strategy at CIBC Capital Markets. "Volatility is going to continue to cool and we're just sitting on our hands."

One-month implied vol fell below 4% on an annualized basis for the first time since September last year. It was above 9% in February as investors and the BoC grappled with the economic implications of an emerging tariff war.

The Canadian central bank will cut its benchmark interest rate by a quarter point on Wednesday as the labor market deteriorates and economic activity weakens, according to most economists in a Reuters poll, who also expect at least one more cut next quarter. A rate cut by the Fed is also expected on Wednesday.

Canadian industries ran at 79.3% of capacity in the second quarter of 2025, from a downwardly revised 79.9% in the first quarter.

The price of oil CLc1, one of Canada's major exports, rose 0.3% to $62.58 a barrel after a Ukrainian drone attack on one of Russia's largest oil and fuel export terminals.

Canadian bond yields moved higher across a steeper curve, tracking moves in U.S. Treasuries. The 10-year CA10YT=RR was up 2.9 basis points at 3.199%, after touching a near four-month low intraday at 3.133% on Thursday.