Canadian dollar scores biggest gain in two months

The Canadian dollar notched its largest gain in two months against the greenback on Friday after data showing faster-than-expected growth of the domestic economy boosted expectations of an interest rate hike from the Bank of Canada in October.
At 3:55 p.m. (1955 GMT), the Canadian dollar was trading 0.9 percent higher at 1.2923 to the greenback, or 77.38 US cents, its biggest since July 20. It left the loonie as the best performing G10 currency on Friday despite the expected release of the text of the Trump administration's trade agreement with Mexico. For the week, the Canadian dollar was nearly unchanged.
US President Donald Trump, who complained this week that talks to modernize the North American Free Trade Agreement (NAFTA) were moving too slowly, has threatened to leave Canada out of the deal if it does not sign up by Sunday. He has also proposed slapping auto tariffs on Canada. "We have a lot of uncertainty on trade still," said Nathan Janzen, a senior economist at Royal Bank of Canada. "At the same time, the domestic economic backdrop still looks plenty strong enough to warrant higher interest rates."
Canada's economy grew 0.2 percent in July, stronger than the 0.1 percent increase that analysts had forecast, Statistics Canada data indicated. The figures are significant because the Bank of Canada earlier this month forecast that temporary factors would weigh on third-quarter growth. Chances of an interest rate increase next month by the central bank climbed to more than 80 percent from 77 percent before the data, the overnight index swaps market indicated.
The Bank of Canada will continue to raise interest rates gradually, Governor Stephen Poloz said on Thursday. The price of oil, one of Canada's major exports, rose as US sanctions on Tehran squeezed Iranian crude exports, tightening supply even as other key exporters increased production. Canadian government bond prices were mixed across a flatter yield curve, with the two-year down 2 Canadian cents to yield 2.212 percent and the 10-year rising 2 Canadian cents to yield 2.421 percent. The gap between the 2-year yield and its US equivalent narrowed by 2.8 basis points to a spread of 60.7 basis points in favor of the US bond.