Canadian dollar adds to win streak, bolstered by yield gap

Fergal Smith
·2 min read
FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto

By Fergal Smith

TORONTO (Reuters) -The Canadian dollar strengthened against its U.S. counterpart on Friday, notching its fourth straight week of gains as the greenback broadly fell and after the Bank of Canada's hawkish shift supported the currency's yield advantage.

The Canadian dollar was trading 0.2% higher at 1.2475 to the greenback, or 80.16 U.S. cents. It was also up 0.2% for the week, adding to slender gains in the prior three weeks.

On Wednesday, the loonie touched its strongest level in one month at 1.2455 after the BoC signaled it could start hiking interest rates next year and cut the pace of bond purchases.

"With the Bank of Canada primed to become the first G-10 central bank to bolt out of the monetary tightening starting gate, interest rate differentials are keeping the loonie well-supported," said Karl Schamotta, chief market strategist at Cambridge Global Payments.

At 16.5 basis points in favor of Canada's bond, the gap between Canada's 2-year yield and its U.S. equivalent was trading at nearly its widest since April last year.

"With strong commodity prices, an accelerating vaccine rollout and powerful fiscal stimulus helping to raise near-term growth expectations, the currency appears poised for an overshoot to the upside," Schamotta said.

Canadian Prime Minister Justin Trudeau received his first dose of AstraZeneca's COVID-19 vaccine on Friday.

On Monday, Trudeau's government forecast a budget deficit of C$154.7 billion in the fiscal year ending next March, as Ottawa spends heavily to counter a third wave of infections.

Canadian factory sales rose 3.5% in March from February, Statistics Canada said in a flash estimate, adding to evidence of economic recovery.

The U.S. dollar fell against a basket of currencies, while the price of oil, one of Canada's major exports, settled 1.2% higher at $62.14 a barrel.

Canada's 10-year yield was up nearly one basis point at 1.523%.

(Reporting by Fergal Smith; Editing by Kirsten Donovan and Jonathan Oatis)