The Canadian dollar strengthened to a four-week high against its US counterpart on Friday, as oil rallied and weaker-than-expected US data weighed on the greenback. The Canadian currency ended the week 1.5 percent higher. The currency had been hit on August 5 by weak domestic employment and trade data that contrasted with a robust US jobs report.
"You have had oil bouncing off its lows and you've had a weak (US) dollar environment over the course of this week. So I think a combination of those two factors is driving demand for commodity, higher-yielding currencies," said Ian Gordon, FX strategist at Bank of America Merrill Lynch.
Oil prices rose on possible action by producers to help stabilize the market. US crude oil futures settled up $1 at $44.49 a barrel. The US dollar fell against a basket of major currencies after US data showed that retail sales were unexpectedly flat in July. The Canadian dollar ended at C$1.2962 to the greenback, or 77.15 US cents, stronger than Thursday's close of C$1.2980, or 77.04 US cents.
The currency's weakest level of the session was C$1.2993, while it touched its strongest since July 15 at C$1.2925. "I am still skeptical that it is going to continue as the Canadian macro data continues to disappoint," said Gordon. "You have seen basically non-energy exports completely stalling out," he added.
Weak US business investment has hampered a long-awaited pick-up in growth of Canada's non-energy exports, economists say, while a weaker Canadian dollar has not helped exports as much as expected. Canadian government bond prices were higher across the maturity curve in sympathy with US Treasuries as expectations dipped for a Federal Reserve rate hike this year. The two-year bond edged up 2.5 Canadian cents to yield 0.526 percent and the benchmark 10-year rose 19 Canadian cents to yield 1.011 percent. Canada's Teranet-National Bank Composite House Price Index showed national home prices rose 2.0 percent last month from June. Prices were up 10.9 percent from a year earlier.