Canadian dollar posts biggest weekly gain this year on robust domestic economy

Toronto

THE Canadian dollar strengthened for a fourth day against the greenback on Friday (Mar 18) as stronger-than-expected domestic retail sales data supported the view that the Bank of Canada will keep pace with expected rate hikes this year by the Federal Reserve.

The loonie was trading 0.2 per cent higher at 1.2595 to the greenback, or 79.40 US cents, its strongest level since March 3.

It added to gains over the previous 3 days. For the week, it was up 1.2 per cent, which was its biggest weekly advance since December.

Canadian retail sales rose 3.2 per cent in January, beating estimates for a 2.4 per cent increase, as shoppers ventured out to car dealerships and home improvement shops, though a preliminary estimate showed sales falling 0.5 per cent in February. "Things are coming together for the Canadian economy," said Ronald Simpson, managing director, global currency analysis at Action Economics. The Bank of Canada (BOC) is "going to be just as aggressive" hiking interest rates as the Fed, he added.

The US central bank on Wednesday hiked interest rates for the first time since 2018. The move came 2 weeks after the BOC began its own tightening cycle.

Money markets expect the benchmark rates of both the Fed and the BOC to end the year at about 2 per cent as the central banks will likely hike multiple times to fight inflation.

The US dollar index bounced back from recent declines against a basket of major currencies, while the price of oil, one of Canada's major exports, settled 1.7 per cent higher at US$104.70 a barrel. It follows a volatile trading week for crude with no easy replacement for Russian barrels in a tight market.

The Canadian 10-year yield was up nearly 1 basis point at 2.196 per cent, after touching on Wednesday its highest level since December 2018 at 2.273 per cent. REUTERS