The Canadian dollar rose for a second straight session against its US counterpart on Friday as month-end demand overtook initial disappointment from soft US economic news. Marginally firmer overnight, the currency hit a session low after the release of US and Canadian GDP data early in the day, and then ground higher again on recovering US stock markets and month-end foreign exchange flows.
The Canadian currency finished at C$1.0283 to the US dollar or 97.25 US cents, up from Thursday's finish at C$1.0362 to the US dollar, or 96.51 US cents. "It looks like it's kind of recaptured what we had in a trend before the sell-off on GDP numbers," said Sacha Tihanyi, currency strategist at Scotia Capital. "It's in line with this big US dollar weakening move, and it's likely too that month-end flows are causing some of the price action."
Data on Friday showed growth in US gross domestic product slowed more than expected in the second quarter, while Canadian GDP edged up in May after stalling unexpectedly in April. Analysts said the Canadian figures should keep the Bank of Canada on track to raise interest rates on September 8. Markets are pricing in roughly a 64 percent chance of a quarter-point increase in the bank's benchmark rate then, according to Friday's yields on overnight index swaps, which reflect expectations for the policy rate.
Recovering equity markets and oil prices helped fuel demand for riskier currencies. Equities cut GDP-linked losses after a barometer of US Midwest business activity in July jumped and US consumer sentiment data for the month came in better than expected.
Canadian bond prices climbed strongly across the curve, mimicking US Treasuries, on talk that prospects of slow growth and low inflation could lead the US Federal Reserve to become more accommodative. The Canadian two-year bond drove 15 Canadian cents higher to yield 1.459 percent, while the 10-year bond added 40 Canadian cents to yield 3.113 percent.
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