The Canadian dollar added to its weekly decline against its U.S. counterpart on Friday as recent widening of the gap between U.S. and Canadian bond yields weighed on the loonie.
The loonie was trading 0.1 per cent lower at 1.4010 per U.S. dollar, or 71.38 U.S. cents, after touching its weakest intraday level since August 7 at 1.40144. It left the currency on course for its eighth straight daily decline, which would be the longest such streak since May.
For the week, the currency was down 1 per cent, as the Federal Reserve hiked interest rates and flagged further increases in borrowing costs in coming months.
“Wider front-end U.S.-Canada yield spreads account for much of the CAD’s slippage over the past few days, according to our correlation matrix,” Shaun Osborne and Eric Theoret, strategists at Scotiabank, said in a note.
The Canadian 2-year yield was trading about 142 basis points below the U.S. equivalent, marking the widest gap since July 28.
The U.S. dollar rose on Friday against a basket of major currencies, including the yen, after two policy makers at the Bank of Japan dissented from a widely expected decision to raise interest rates.
U.S. crude oil futures were trading 0.5 per cent higher at US$102.43 a barrel as markets assessed Saudi supply alongside concerns about a widening Middle East conflict. Oil is one of Canada’s major exports.
Bank of Canada Governor Tiff Macklem is due to speak on Monday on economic developments.
“His comments may reaffirm the hawkish tone adopted following the Bank’s meeting earlier this month,” the Scotiabank strategists said.
Investors see a roughly 60-per-cent chance the BoC would hike at its next policy announcement on October 28.
Canadian bond yields rose across the curve, tracking moves in U.S. Treasuries.
* The 10-year was up 5.5 basis points at 3.878 per cent but remained below the nearly 3-year high touched on Monday at 3.987 per cent.