The Canadian dollar weakened against its US counterpart on Friday as oil fell and stronger-than-expected US data supported the greenback. Better news from Alberta this week, where some production restarted at oil sands facilities following a wildfire, has since been offset by stronger-than-expected US retail sales data and hawkish comments by US Federal Reserve officials.
The Fed has been more forthright over the last 24 hours in telling the market it has underestimated the potential for interest rate hikes this year, said Dean Popplewell, vice president of currency analysis at OANDA. The US dollar climbed to a two-week peak against a basket of currencies on Friday as the retail sales data appeared to boost expectations the Fed will raise interest rates more than once this year.
Oil prices fell, ending a three-day rally as a strong dollar weighed and investors cashed in on recent gains, but losses were cushioned by outages in Nigeria that have slashed output to the lowest in over two decades. US crude prices fell 0.7 percent to $46.37 a barrel. The Canadian dollar ended at C$1.2935 to the greenback, or 77.31 US cents, weaker than Thursday's close of C$1.2834, or 77.92 US cents. After making a recent 10-month high of C$1.2461, the loonie earlier this week hit its weakest in one month of C$1.3016.
"It's really a rudderless ship at the moment," said Popplewell, who added that fluctuation in oil this week left investors without clear direction. Canadian Prime Minister Justin Trudeau got a first-hand look on Friday at the damage from a devastating wildfire which cut production in Alberta's oil sands region and weakened the outlook for Canada's economy. Economists say second-quarter growth may slow to a standstill.
Still speculators have increased bullish bets on the loonie, Commodity Futures Trading Commission data showed. Net long Canadian dollar positions rose to 25,874 contracts in the week ended May 10 from 18,943 contracts in the prior week. Canadian government bond prices were higher across a flatter maturity curve. The two-year rose 2.5 Canadian cents to yield 0.554 percent and the benchmark 10-year climbed 38 Canadian cents to yield 1.279 percent. The 10-year yield touched its lowest since April 18 of 1.265 percent.
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