The Canadian dollar weakened slightly against its US counterpart on Friday as higher oil prices were offset by broader gains for the greenback and data showing cooler domestic core inflation. For the week, the loonie ended 0.2 percent higher. But it has fallen 1.5 percent since before the US election last week, pressured by a more uncertain outlook for its trade-intensive economy.
"We're still on the ropes a little bit for the CAD (Canadian dollar) overall," said Shaun Osborne, chief currency strategist at Scotiabank. On Monday, the loonie touched its weakest in eight months at C$1.3589. "Markets would have been very negative on the CAD if the inflation numbers had disappointed," Osborne said. Canada's annual inflation rate picked up to 1.5 percent in October, matching analysts' expectations, as gasoline prices rose. But the core rate, which strips out some volatile items, cooled slightly to 1.7 percent from 1.8 percent, hitting the lowest level since July 2014.
"Decelerating core inflation does reflect an economy that has still a fair bit of excess capacity in it," said Andrew Kelvin, senior rates strategist at TD Securities. The US dollar rose to its highest level since April 2003 against a basket of currencies. US crude prices settled up 27 cents at $45.69 a barrel, buoyed by hopes that Opec might agree to production cuts.
Oil is one of Canada's major exports. The Canadian dollar ended at C$1.3513 to the greenback, or 74.00 US cents, slightly weaker than Thursday's close of C$1.3507, or 74.04 US cents. The currency's strongest level of the session was $1.3492, while its weakest was C$1.3564. The expiry of billions of dollars of options struck at C$1.3500 and buying of the Canadian dollar against the euro, sterling and the Australian dollar helped cushion losses for the loonie, Osborne said.
Canadian government bond prices were mixed across a steeper yield curve. The two-year firmed 1.5 Canadian cents to yield 0.669 percent and the benchmark 10-year declined 8 Canadian cents to yield 1.573 percent. The 10-year yield fell 5.1 basis points further below its US counterpart to leave the spread at -76.6 basis points, its largest gap since January, as US Treasuries underperformed. "It (the spread) can go more deeply negative ... you could even see a full percentage point through," said Scott Colbourne, co-chief investment officer at Sprott Asset Management, who sees evidence of the US and Canadian economies diverging.