The Canadian dollar CADUSD edged lower against its U.S. counterpart on Friday, extending a modest weekly decline, as oil prices fell and the gap between U.S. and Canadian bond yields moved in favor of the U.S. bonds.
The loonie was down 0.1% at 1.2515 to the greenback, or 79.90 U.S. cents, after trading in a range of 1.2481 to 1.2539.
For the week, the currency weakened 0.3%, after touching on Wednesday its strongest intraday level in nearly five months at 1.2427.
The Canadian dollar “looks to be consolidating around 1.2500,” said Eric Theoret, global macro strategist at Manulife Investment Management. “Interest rate differentials have been moving in favor of the USD and may act as a near term headwind.”
U.S. Treasury yields rose sharply as a strong jobs report for March supported the view that the Federal Reserve will need to aggressively hike interest rates to stem soaring inflation.
The U.S. 2-year yield climbed to 10 basis points above its Canadian counterpart from a level of 1 basis point below, increasing the attractiveness of owning the U.S. note, while the U.S. dollar climbed against a basket of major currencies.
The Bank of Canada is also expected to hike aggressively to fight inflation and to soon begin shrinking its bloated balance sheet.
Canadian manufacturing activity expanded at a record pace in March as restrictions to contain the coronavirus pandemic eased and demand conditions improved, although the Russia-Ukraine war contributed to mounting cost pressures.
The price of oil, one of Canada’s major exports, settled 1% lower at $99.27 a barrel as members of the International Energy Agency (IEA) agreed to join in the largest-ever U.S. oil reserves release.
The Canadian 10-year yield was up 4.7 basis points at 2.448%, after touching on Tuesday its highest level in more than three years at 2.607%.
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