The Canadian dollar CADUSD weakened to a three-week low against its U.S. counterpart on Friday as domestic retail sales data suggested that higher borrowing costs are taking a toll on the economy.
Canadian retail sales dipped by 0.2 per cent in February from January, and are expected to drop another 1.4 per cent in March, according to data from Statistics Canada.
“High mortgage rates are starting to bite Canadians’ wallets,” said Adam Button, chief currency analyst at ForexLive. “Canada is particularly sensitive to higher interest rates and that will lead to divergence in U.S. and Canadian economic performance in the second quarter and beyond.”
The Bank of Canada has lifted its benchmark interest rate to a 15-year high of 4.50 per cent to tackle inflation, leading to upward pressure on mortgage rates after a number of years in which Canadians borrowed heavily to participate in a red-hot housing market.
The Canadian dollar was trading 0.5 per cent lower at 1.3545 to the greenback, or 73.83 U.S. cents, after touching its weakest intraday level since March 31 at 1.3563.
For the week, the currency lost 1.4 per cent as investors raised bets on an interest rate hike next month by the Federal Reserve and the price of oil, one of Canada’s major exports, fell.
Oil clawed back some of its weekly decline on Friday, settling 0.7 per cent higher at $77.87 a barrel.
Canadian government bond yields were lower across the curve. The 2-year dropped 6 basis points to 3.746 per cent, while it was trading 8 basis points further below its U.S. counterpart to a gap of about 44 basis points.