The Canadian dollar weakened against its US counterpart on Friday as employment reports from both countries kept their divergent monetary policy paths on track. The loonie, as Canada's currency is colloquially known, has lost almost 10 percent of its value since May. The central bank has cut rates twice this year as a plunge in the price of oil batters the country's energy industry.
While the plunge has thrown up signs that the Canadian currency is ready to pause, external factors such as weak crude prices may exert further pressure. The Canadian dollar ending the week trading at C$1.3133 to the greenback, or 76.14 US cents, weaker than Thursday's close of C$1.3108, or 76.29 US cents.
"Technically it looks as though we're topping out at this C$1.32 level," said David Bradley, director of foreign exchange trading at Scotiabank. "The likelihood of a Fed (interest rate) hike is still there, and I think there's a likelihood that the Bank of Canada could still cut rates," he said. "(Bank of Canada Governor Stephen) Poloz is happy with a softer Canadian dollar."
The Canadian economy added 6,600 jobs in July, above the average forecast of economists, but the number of full-time jobs declined. US employment rose at a solid clip in July and wages rebounded after unexpectedly stalling in the prior month, signs of an improving economy that could open the door to a Federal Reserve interest rate increase in September.
"Going into the report, it (the Canadian dollar) was quite a bit stronger, and it's since lost all that ground that it had," said Doug Porter, chief economist at BMO Capital Markets. "I think some of that is just more reflective of a solid US report today that keeps the Fed on track."
Scotia's Bradley said there was little precedent for the currency at these levels, its weakest since 2004, but that he expects it to test the mid-C$1.33s by the end of the month. Weakness beyond that would test a Fibonacci retracement level from all-time high to all-time low at C$1.3467, he said. US crude prices fell 1.9 percent to $43.80 a barrel, while Brent crude lost 1.9 percent to $48.56. The yield curve for Canadian government bonds flattened, with the price for the two-year down 1.5 Canadian cents to yield 0.442 percent and the benchmark 10-year up 26 Canadian cents to yield 1.424 percent.
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