The Canadian dollar touched its strongest level against its US counterpart in three weeks on Friday, underpinned by a broader US dollar selloff and as a batch of US data tempered recent optimism about the economy. The Canadian dollar gained nearly a cent this week, while the greenback extended Thursday's retreat as the latest data backed expectations the Federal Reserve is unlikely to change course on monetary policy for the foreseeable future.
The Canadian dollar "had a pretty good day," Blake Jespersen, managing director, foreign exchange sales at BMO Capital Markets, said. "I think a lot of that was related to poor positioning, overly long US dollar positions that got a bit stretched and a little bit of profit-taking at the end of the week." The Canadian dollar was trading at C$1.0193 against the US dollar, or 98.11 US cents, firmer than Thursday's North American finish of C$1.0223, or 97.82 US cents. It had touched C$1.0181, or 98.22 US cents, earlier in the session.
The loonie, as the currency is nicknamed, briefly pared some gains after data showed sales of existing homes in Canada fell in February from January and year-over-year sales plummeted, more evidence that the country's once-hot housing market is slowing. "Housing is the chief risk for the Canadian dollar and the Canadian economy, and any indication of a strong move in one direction or another, the market will be sensitive," said Adam Button, a currency analyst at ForexLive in Montreal.
He noted, however, that Friday's data point was not a major mover. "One data point isn't going to write the story." The currency's performance was mixed against other major currencies. It was stronger than the Australian dollar after touching its weakest level in more than a year on Thursday, while weaker against the euro and the Japanese yen.
US manufacturing output bounced back in February, but other reports on Friday showed a surge in gasoline prices caused a spike in consumer inflation last month and eroded consumer sentiment in early March. Still, the impact on the economy was seen as likely limited and temporary. Recent strong US data, particularly on the jobs market, helped propel a rally in the dollar for over a month, sending the loonie to some of its weakest levels in eight months.
"I still think the Canadian dollar is vulnerable to further losses," said Jespersen. "The domestic economy is looking a little sluggish and commodity prices have been sliding, so I think the Canadian dollar still has quite a bit of room to fall in the near term." The price of Canadian government debt was higher across the curve, with the two-year bond up 2 Canadian cents to yield 0.995 percent, while the benchmark 10-year bond climbed 44 Canadian cents to yield 1.898 percent.