The Canadian dollar weakened to a fresh one-week low against its US counterpart on Thursday, pressured by lower oil prices and Federal Reserve rate hike speculation, but losses were trimmed ahead of the Good Friday holiday. The currency has weakened 2.4 percent since last week touching its strongest in nearly five months. The pullback in crude oil prices, hawkish comments from Fed policymakers and corporate take-over activity have been headwinds this week, according to Don Mikolich, executive director, foreign exchange sales at CIBC Capital Markets.
Corporate accounts have been "more active," selling Canadian dollars on the move lower for the currency on the expectation that it may weaken still further in the near-term, he added. US crude prices were down 0.48 percent to $39.60 a barrel, although paring much of the day's losses after a renewed drop in the US oil rig count offset weaker sentiment caused by record high US crude stockpiles.
The greenback climbed for a fifth consecutive day against a basket of major currencies as investors moved to price in the possibility of two US rate hikes this year. However, a drop in shipments of US core capital goods could prompt economists to trim US first-quarter GDP growth estimates. The Canadian dollar closed at C$1.3240 to the greenback, or 75.53 US cents, weaker than Wednesday's close of C$1.3214, or 75.68 US cents. The currency's strongest level of the session was C$1.3201, while it touched its weakest since March 16 at C$1.3296. A stimulus budget from Canada's new Liberal government, combined with a modest recovery in oil and non-commodity exports, makes it likely the Bank of Canada's next move will be an interest rate hike rather than a cut.
However, the fiscal measures announced this week had little impact on the currency, with the C$29.4 billion shortfall close to what analysts had expected. Canadian government bond prices were lower across the maturity curve. The two-year price fell 1 Canadian cent to yield 0.566 percent and the benchmark 10-year was down 25 Canadian cents to yield 1.274 percent. The curve steepened in sympathy with US Treasuries, as the spread between the 2-year and 10-year yields widened 2.1 basis points to 70.8 basis points, indicating underperformance for longer-dated maturities.