The Canadian dollar edged higher against its US counterpart on Friday, recovering from an earlier three-month low, as oil rose and the market weighed prospects of Federal Reserve Governor Jerome Powell being picked to head the US central bank. US crude oil futures jumped to the highest since early March, settling 2.4 percent higher at $53.90 a barrel, as the world's top producers indicated support for extending a deal to rein in output. Oil is one of Canada's major exports.
The US dollar pared some of its earlier gains versus a basket of currencies following a report that President Donald Trump is leaning toward Powell as his pick for Fed Chair. Powell is seen as less hawkish than one of the other leading candidates. Still, the Canadian dollar has been the weakest performer of the G10 currencies in the seven weeks since the Bank of Canada last raised interest rates, and some strategists predict more declines in value after the central bank on Wednesday dialed back expectations for more rate increases this year.
"We do think that the loonie will remain on the defensive, at least for now," said Bipan Rai, senior macro strategist at CIBC Capital Markets. "Positioning and sentiment still remain overly bullish on the Canadian dollar."
Bullish bets on the loonie held near their highest in about five years, data from the US Commodity Futures Trading Commission and Reuters calculations showed. As of October 24, Canadian dollar net long positions had dipped to 72,332 contracts from 75,086 a week earlier. At 4 pm EDT (2100 GMT), the Canadian dollar was trading at C$1.2827 to the greenback, or 77.96 US cents, up 0.1 percent.
It touched its weakest intraday since July 12, when the Bank of Canada raised rates for the first time in nearly seven years, at C$1.2916. For the week, it declined 1.6 percent. Canadian government bond prices were higher across a flatter yield curve, with the two-year up 6 Canadian cents to yield 1.427 percent and the 10-year rising 37 Canadian cents to yield 1.989 percent. The gap between Canada's two-year yield and its US counterpart widened by 0.7 of a basis point to a spread of -16.9 basis points, its widest since July 11.
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