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The Canadian dollar CADUSD extended recent declines against its U.S. counterpart on Thursday as investors grew more worried about the global economy and the Bank of Canada played down prospects of interest rates rising by more than half a percentage point in any one move.

The loonie was trading 0.6% lower at 1.3070 to the greenback, or 76.51 U.S. cents, after touching its weakest level since November 2020 at 1.3076.

“The Canadian dollar is caught along with other commodity currencies in a risk-off loop,” said Rahim Madhavji, president at KnightsbridgeFX.com.

Wall Street extended recent declines as investors worried that persistently high inflation could provoke increasingly aggressive policy tightening by the Federal Reserve.

“Everyone is trying to figure out how high is inflation really running ... what is the Fed going to do and what are the longer-term prospects for the economy and oil prices,” Madhavji said.

The price of oil, one of Canada’s major exports, rose as recession fears were offset by supply concerns and geopolitical tensions in Europe. U.S. crude prices settled 0.4% higher at $106.18 a barrel.

Meanwhile, Bank of Canada Deputy Governor Toni Gravelle said the Canadian central bank’s policy rate, at 1%, is “too stimulative” given soaring inflation and needs to return to more neutral levels “quickly.”

Still, it would not be easy to hike rates by 75 basis points in one go due to the unusually uncertain outlook, Gravelle added.

Canadian government bond yields were lower across the curve, tracking the move in U.S. Treasuries. The 10-year hit its lowest level since May 2 at 2.888% before recovering slightly to 2.897%, down 10.7 basis points on the day.

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