Canadian dollar adds to winning streak, bolstered by yield gap

Toronto

THE Canadian dollar strengthened against its US counterpart on Friday, notching its fourth straight week of gains as the greenback broadly fell and after the Bank of Canada's (BOC) hawkish shift supported the currency's yield advantage.

The Canadian dollar was trading 0.2 per cent higher at 1.2475 to the greenback, or 80.16 US cents. It was also up 0.2 per cent for the week, adding to slender gains in the prior three weeks.

On Wednesday, the loonie touched its strongest level in one month at 1.2455 after the BOC signalled that it could start hiking interest rates next year and cut the pace of bond purchases.

"With the Bank of Canada primed to become the first G-10 central bank to bolt out of the monetary tightening starting gate, interest rate differentials are keeping the loonie well-supported," said Karl Schamotta, chief market strategist at Cambridge Global Payments.

At 16.5 basis points in favour of Canada's bond, the gap between Canada's two-year yield and its US equivalent was trading at nearly its widest since April last year.

"With strong commodity prices, an accelerating vaccine roll-out and powerful fiscal stimulus helping to raise near-term growth expectations, the currency appears poised for an overshoot to the upside," Mr Schamotta said.

Canadian Prime Minister Justin Trudeau received his first dose of AstraZeneca's Covid-19 vaccine on Friday.

On Monday, Mr Trudeau's government forecast a budget deficit of C$154.7 billion in the fiscal year ending next March, as Ottawa spends heavily to counter a third wave of infections.

Canadian factory sales rose 3.5 per cent in March from February, Statistics Canada said in a flash estimate, adding to evidence of economic recovery.

The US dollar fell against a basket of currencies, while the price of oil, one of Canada's major exports, settled 1.2 per cent higher at US$62.14 a barrel.

Canada's 10-year yield was up nearly one basis point at 1.523 per cent. REUTERS