TORONTO: The Canadian dollar strengthened to a 12-week high against its US counterpart on Thursday as base and precious metal prices rallied, although it underperformed other commodity-related and European currencies.
The currency extended its recovery from a 12-year low in January at $1.4689 as weaker US data weighed on the greenback ahead of Friday's US jobs report.
"The US economy is growing but not quite at the trajectory that the Fed and other market participants are hoping for," said Lennon Sweeting, a foreign exchange dealer at USForex.
The US service sector expanded in February at a slightly slower pace than the previous month and employment in the sector declined for the first time in two years.
"The market is starting to realize that the greenback is pretty significantly overpriced given that a rate hike isn't looking as likely," Sweeting added.
Recent strength in commodity markets helped support Canada's commodity-linked currency.
US crude prices ended a three-day rally, settling slightly lower at $34.57 a barrel.
Copper prices hit their highest in more than three months, while gold climbed to a nearly 13-month high.
The Canadian dollar ended at C$1.3396 to the greenback, or 74.65 US cents, stronger than Wednesday's close of C$1.3427, or 74.48 US cents.
The currency's weakest level of the session was C$1.3473, while it touched its strongest since Dec. 7 at C$1.3372.
Domestic data on Tuesday showed the economy slowed less-than-expected in the fourth quarter.
It wasn't "poor enough" to warrant a Bank of Canada rate cut, said Sweeting, "especially with oil rebounding."
The implied probability of a rate cut this year has fallen to 47 percent from 80 percent last week when Finance Minister Bill Morneau said the government would stick to plans to stimulate the economy in a March 22 federal budget.
Still, the currency fell to a one-week low of C$0.9884 against the Australian dollar, while it also lost ground against the euro, touching C$1.4700 at its weakest.
Canadian government bond prices were higher across the maturity curve, with the two-year price up 3 Canadian cents to yield 0.518 percent and the benchmark 10-year rising 25 Canadian cents to yield 1.222 percent.
On Wednesday, the 10-year yield touched its highest since Jan. 28 at 1.302 percent.
January trade data is due on Friday, expected to reveal a widening deficit of C$1.10 billion after shrinking sharply the month before. Analysts will be looking to see if exports can maintain momentum.
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