The Canadian dollar strengthened against its U.S. counterpart on Thursday as the greenback broadly declined, but the loonie stuck within its recent range as investors weighed the impact of higher U.S. bond yields on currency markets.
The Canadian dollar was 0.2 per cent higher at 1.2672 to the greenback, or 78.91 U.S. cents, having traded in a range of 1.2665 to 1.2730. Last month, it touched its highest in nearly three years at 1.2586.
“The Canadian dollar is rangebound, albeit with a modest firming bias,” Rahim Madhavji, president at KnightsbridgeFX.com said in a note. “The tug of war between the Fed and bond traders is ongoing.”
U.S. long-term bond yields have scaled one-year highs this week in anticipation of an economic recovery, boosting the U.S. dollar against a basket of major currencies. But the greenback gave back some of those gains on Thursday, pressured by disappointing labor market data.
Canadian yields have also moved higher, signaling the economy needs less support than it did in 2020, strategists say, as investors become more confident that a successful rollout of COVID-19 vaccines will eventually boost activity and inflation.
The 10-year yield touched its highest since March last year at 1.160 per cent before dipping to 1.148 per cent, up 3.8 basis points on the day.
The price of oil, one of Canada’s major exports, fell despite a sharp drop in U.S. crude inventories, as market participants took profits following days of buying spurred by a cold snap in Texas. U.S. crude prices settled 1 per cent lower at $60.52 a barrel.
Canada lost 231,200 jobs in January, the largest decrease since May last year, a report from payroll services provider ADP showed. December data was revised to show an increase of 338,200 jobs rather than a decline of 28,800.
Canada’s retail sales report for December is due on Friday.
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.