The Canadian dollar rose on Friday, lifted by a rally in global equities and commodity prices, and on momentum from this week's Bank of Canada policy announcements. North American stock markets rose on Friday, helped in part by better than expected corporate results and after a highly anticipated paper on government stress tests for US banks, aimed at ensuring they have enough capital in reserve to continue to lend in potentially bleaker conditions.
"The way equities have performed it's been one of those days where the commodity currencies have done better," said Steve Butler, director of foreign exchange trading at Scotia Capital. Broad US dollar weakness also helped lift the Canadian currency, added Butler.
The Canadian dollar continued to gain momentum following a report on Thursday by the Bank of Canada that surprised markets with a go-slow approach to injecting additional economic stimulus through unconventional measures. The bank provided an outline on how it might go about boosting the money supply by purchasing financial assets, also known as quantitative easing, and through credit easing, which involves help for targeted private-sector credit markets.
But it said it needed to be prudent and would not be taking any such steps immediately, signalling it would not go down that road before June, if at all. The framework followed the central bank's decision on Tuesday to cut interest rates 25 basis points to 0.25 percent, and pledge to keep the rate at 0.25 percent until mid-2010.
"Between yesterday and today, the market is backing off its fear that quantitative easing would debase the currency, while at the same time lowering the odds of central bank purchases of government debt," said Derek Holt, economist at Scotia Capital.
Commodity prices also boosted the currency, with the price of oil, a key Canadian export, above $51 a barrel. Crude futures got a boost from higher equity markets, which hinted at healthier demand ahead, and from a weaker US dollar, which attracted commodity buyers.