The Canadian dollar CADUSD strengthened to its highest level in more than two months against its American counterpart on Friday as investors cheered U.S. data showing that inflation pressures have eased.
The loonie was trading 0.1% higher at 1.3305 to the greenback, or 75.16 U.S. cents, after touching its strongest since Nov. 18 at 1.3298.
For the week, the currency was up 0.6%. That was its sixth straight week of gains, its longest weekly winning streak since May 2021.
“You’ve got oil prices up, market sentiment improving and continuing to improve, and so overall just a better picture for the global economy and the Canadian dollar,” said Eric Theoret, a global macro strategist at Manulife Investment Management.
“That continued improvement (in sentiment) has allowed the CAD to get a bit closer to its fair value.”
Theoret estimates fair value for the loonie to be about 1.30, based on interest rate differentials and the price of oil, one of Canada’s major exports.
Oil settled 1.6% lower at $79.68 a barrel but has climbed 13% since December, while Wall Street advanced after U.S. data showed softening demand and cooling inflation – which is exactly what the Federal Reserve’s interest rate hikes are intended to accomplish.
On Wednesday, the Bank of Canada raised its key interest rate to 4.5% and signalled a pause in its tightening campaign.
Higher borrowing costs have contributed to Canada’s budget deficit. It was C$3.55 billion ($2.67 billion) for the first eight months of the 2022/23 fiscal year, the finance ministry said on Friday, but that was much less than for the same period in the prior fiscal year.
Canadian bond yields were higher across the curve, tracking the move in U.S. Treasuries.
The 10-year touched its highest since Jan. 13 at 2.932% before dipping to 2.898%, up 3.2 basis points on the day.