The Canadian dollar strengthened to a one-month high against its U.S. counterpart on Friday as oil prices jumped and recent softer-than-expected U.S. inflation data cooled expectations for Federal Reserve interest rate hikes.
The loonie was trading 0.2% higher at 1.4015 per U.S. dollar, or 71.35 U.S. cents, after touching its strongest intraday level since June 17 at 1.4006. For the week, the currency was up 1%, its biggest weekly gain since April.
“I think that the big driver this week was the much lower than expected U.S. CPI numbers for June,” said Erik Bregar, director, FX & precious metals risk management at Silver Gold Bull.
“That lowered the U.S. yield spread over Canadian yields. It pretty much removed July rate hike expectations from the Fed.”
The gap between Canada’s 2-year yield and its U.S. equivalent narrowed by 3.2 basis points to about 130 basis points in favor of the U.S. note, marking its narrowest since June 16. U.S. crude oil futures settled 4.5% higher at $82.49 a barrel, adding to this week’s gains, after the U.S. and Iran stepped up attacks across the Gulf. Oil is one of Canada’s major exports.
Domestic data showed that foreign investors bought a net C$7.90 billion ($5.63 billion) in Canadian securities in May, led by federal government bonds, following an upwardly revised C$46.92 billion total purchase in April.
Canadian government bond yields moved higher across the curve. The 10-year was up 2.7 basis points at 3.558%, moving closer to a near eight-week high touched on Wednesday at 3.596%.