The Canadian dollar rallied to a three-week high against the greenback on Friday after Canadian inflation data came in stronger than forecast, making an interest-rate cut by the Bank of Canada highly unlikely. The currency was also buoyed by a rise in crude prices, which had their first weekly gain in two months, that was propelled by a rate cut in China and speculation that Opec might agree next week to reduce oil production.
In Canada, the consumer price index rose 2.4 percent year-on-year in October, putting inflation at the highest level since June and surpassing economists' forecasts for a more modest increase of 2.1 percent. The CPI rise in September was 2.0 percent. "With this unexpected pressure on the inflation side, it raises the probability of the Bank of Canada moving into a tightening mode and a higher probability is, I think, what is providing a lift to the Canadian dollar," said RBC assistant chief economist Paul Ferley, adding, however, that he did not believe a rate hike was imminent.
The Canadian dollar had its best showing since the end of October. It touched a high of C$1.1191 to the greenback, or 89.36 US cents, during the session, more than a cent stronger than Thursday's close of C$1.1306, or 88.45 US cents, before paring some of the gains. The loonie, which was outperforming nearly all major currencies against the US dollar, finished at C$1.1239, or 88.98 US cents, and was about 0.4 percent stronger against the US dollar for the week.
Next week, investor focus will turn to Canadian retail sales data for September on Tuesday. It will be the final key piece of economic data before third-quarter gross domestic product figures are released on Friday. Market participants are expecting a robust September after a very weak showing in July and August. Canadian government bond prices were mixed across the maturity curve, with the two-year shedding 3.5 Canadian cents to yield 1.061 percent, and the benchmark 10-year gaining 9 Canadian cents to yield 2.008 percent.
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