The Canadian dollar rallied to a one-week high against the greenback on Friday, to end the first quarter up more than 2 per cent as investors cut bearish bets on the currency after data showed surprising strength in the domestic economy.
The Canadian economy grew by 0.3 per cent in January, beating analysts forecasts and reversing recent declines as the construction and manufacturing sectors picked up.
In contrast, U.S. data consumer spending data suggested the economy was fast losing momentum after growth slowed in the fourth quarter.
“Those numbers, strong Canadian data with weak U.S. data just did a whammy on the market.” said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York.
Investors who were shorting the currency, expecting it to extend recent losses, were forced to cut their positions, Anderson said.
Recent data from the Commodity Futures Trading Commission has showed that investors have added since February to bearish bets on the loonie.
Chances of a Bank of Canada interest rate cut by December dropped to 45 per cent from nearly 70 per cent before the data, the overnight index swaps market indicated.
Adding to support for the loonie, U.S. crude oil futures settled 1.4 per cent higher at US$60.14 a barrel.
The Canadian dollar traded late Friday 0.7 per cent higher at 1.3353 to the greenback, or 74.89 U.S. cents. The currency touched its strongest intraday level since March 21 at 1.3342.
The loonie fell 1.4 per cent in March. Still, it has advanced 2.2 per cent since the start of the year, the best performance in the G10.
Gains for the loonie on Friday came as the latest round of U.S.-China trade talks ended on a positive note, boosting stocks.
Canadian government bond prices were lower across the yield curve, with the 10-year falling 57 Canadian cents to yield 1.629 per cent.
The gap between Canada’s 10-year yield and the three-month T-bill narrowed by 6.1 basis points to a spread of minus 3.6 basis points. The curve inverted last Friday for the first time since 2007.
Investors trying to work out whether the inversion of the U.S. yield curve signals a looming recession may find clues, but little comfort, in the Canadian bond market, which is less distorted by central bank buying.