Canadian dollar drops, posts weekly decline on greenback short-covering

Toronto

THE Canadian dollar weakened against its US counterpart on Friday as a decline in risk appetite led to broader gains for the safe-haven greenback, with the loonie giving back the week's gains despite data showing record home sales.

The Canadian dollar was trading 0.8 per cent lower at 1.2732 to the greenback, or 78.54 US cents, pulling back from a near three-year high on Thursday at 1.2621. For the week, the loonie was down 0.4 per cent.

"It has primarily been some covering of short US dollar positions," said Bipan Rai, North America head of FX Strategy at CIBC Capital Markets. "It's a move in line with what we have seen in other currencies . . . So it's not the Canadian dollar on its own."

Higher US Treasury yields in anticipation of additional fiscal spending, have been supportive of the greenback since earlier this month.

US President-elect Joe Biden proposed on Thursday a stimulus package of US$1.9 trillion, but investor sentiment wavered as China reported the highest number of daily Covid-19 cases in more than 10 months.

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Investors have also been grappling with the slower than expected rollout of vaccines. Pfizer Inc said it would slow production of its vaccine due to changes to manufacturing processes aimed at boosting production.

Global shares fell and US crude oil futures settled 2.3 per cent lower at US$52.36 a barrel. Oil is one of Canada's major exports.

Canadian home sales rose 7.2 per cent in December from November, setting a new record, the Canadian Real Estate Association said.

The housing market has benefited from record-low interest rates set by the Bank of Canada. The central bank is due to make an interest rate decision next week.

Canadian government bond yields were lower across a flatter curve in sympathy with US Treasuries. The 10-year was down 4.6 basis points at 0.810 per cent. REUTERS