Hope for U.S. Federal Reserve pivot help Canadian dollar extend weekly gain

The Canadian dollar CADUSD strengthened against its US counterpart on Friday, adding to this week’s gains, after suspected Bank of Japan intervention and as investors weighed prospects of the US Federal Reserve dialing back the pace of interest rate hikes.

The Canadian dollar was up 0.7% at 1.3670 to the greenback, or 73.15 US cents, after trading in a range of 1.3655 to 1.3854.

For the week, the currency gained 1.5%, as hotter-than-expected domestic inflation data bolstered bets for a three-quarters of a percentage point interest rate increase by the Bank of Canada at a policy decision next Wednesday.

“Today is much less about Canada and is much more about the Fed and I guess to a certain extent the BoJ as well,” said Eric Theoret, global macro strategist at Manulife Investment Management.

“The Canadian dollar is doing what you would expect it to do in this kind of environment where you have got risk appetite being supported.”

Wall Street rallied and the US dollar fell against a basket of major currencies after a report said the Fed will likely debate on signaling plans for a smaller interest rate hike in December.

The greenback’s decline was particularly large against the yen as traders said Japanese authorities may be in the market to stem a slide in their battered currency.

Adding to support for the loonie, US crude oil futures settled 0.6% higher at $85.05 a barrel amid hopes of stronger Chinese demand.

In domestic data, retail sales grew by 0.7% in August from July, beating estimates for a 0.2% increase. Flash estimates for September were less upbeat, showing retail sales falling by 0.5% and wholesale trade dipping 0.2%.

The Canadian 10-year yield eased 5.5 basis points to 3.627% after earlier touching its highest level since November 2008 at 3.779%.


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