The Canadian dollar weakened to a two-week low against its broadly stronger US counterpart on Friday as chances of a US interest rate hike this year rose after comments from Federal Reserve officials, including Fed Chair Janet Yellen. Speaking in Jackson Hole, Wyoming, Yellen said the case for raising US interest rates has strengthened in recent months. Fed Vice Chair Stanley Fischer later reinforced that message.
The market is in "desperate need" of new information in order to break out of its current trading range, said Brad Schruder, director of corporate sales and structuring at BMO Capital Markets. Higher US inflation data may be necessary to convince markets that the Fed is ready to pull the trigger on a rate hike, Schruder added. The odds of a hike in September climbed to 30 percent from 21 percent on Thursday, according to CME Group's FedWatch tool. Traders were pricing in a 60.2 percent chance of a hike in December, up from 51.8 percent on Thursday.
Oil prices rose, but some gains were pared as traders reacted to comments from Fed officials and reports of missile activity in Saudi Arabia. US crude oil futures settled 31 cents higher at $47.64 a barrel. The Canadian dollar ended at C$1.3000 to the greenback, or 76.92 US cents, weaker than Thursday's close of C$1.2926, or 77.36 US The currency's strongest level of the session was C$1.2832, while it touched its weakest since August 11 at $1.3013.
For the week, the loonie lost 1.1 percent. Speculators raised bullish bets on the Canadian dollar for the first week in four, Commodity Futures Trading Commission data showed. Net long Canadian dollar positions rose to 16,734 contracts in the week ended August 23 from 12,473 contracts in the prior week. Canada swung to a budgetary deficit in June compared with a year ago, the federal finance department said.
Canadian government bond prices were lower across the maturity curve. The two-year bond dipped 2 Canadian cents to yield 0.602 percent and the benchmark 10-year declined 21 Canadian cents to yield 1.088 percent. Canada's 2-year yield fell 4.5 basis points further below its US equivalent as Treasuries underperformed, with the spread hitting -23.9 basis points. Canada will likely maintain its 2 percent inflation target and bypass alternative policy goals when the central bank renews its inflation-control agreement this year, strategists say, but the main measure of core inflation may change.