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FX Daily Updates
Canadian dollar extends weekly decline on wider yield spreads
- Canadian dollar falls 0.1% against the greenback
- Touches its weakest since May 2020 at 1.4105
- Factory sales decrease 0.5% in September
- Bond yields ease across the curve
TORONTO, Nov 15 (Reuters) - The Canadian dollar weakened to a 4-1/2 year low against its U.S. counterpart on Friday as oil prices fell and a wider gap between U.S. and Canadian yields reduced the incentive for investors to hold the currency.
The loonie was trading 0.1% lower at 1.4075 to the U.S. dollar, or 71.05 U.S. cents, after touching its weakest intraday level since May 2020 at 1.4105.
For the week, the currency was down 1.2%, its sixth weekly decline in the last seven weeks.
"The CAD's principal headwind comes from spreads ... with short-term cash and swaps spreads having widened significantly in the USD's favour in the wake of U.S. election," Shaun Osborne, chief currency strategist at Scotiabank, said in a note.
The gap between the Canadian 2-year yield and its U.S. equivalent widened by 5.5 basis points to roughly 115 basis points in favor of the U.S. note, near its widest since 1997. Investors tend to favor higher yielding currencies.
Upbeat U.S. retail sales data contributed to traders paring back expectations that the Federal Reserve would cut interest rates in December, while the potential for higher inflation under the incoming Trump administration has tempered expectations for Fed easing in 2025.
Domestic data for September was mixed. It showed factory sales falling 0.5% from the previous month and wholesale trade up 0.8%. Data for October showed home sales jumping 7.7%, adding to the rise in activity since the Bank of Canada began cutting interest rates in June.
The price of oil , one of Canada's major exports, fell 1.4% to $67.73 a barrel and was bound for a weekly loss as investors digested waning Chinese demand.
Canadian bond yields edged lower across the curve, with the 10-year down 1.2 basis points at 3.272%.
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https://www.reuters.com/markets/currencies/canadian-dollar-extends-weekly-decline-wider-yield-spreads-2024-11-15/
