The Canadian dollar strengthened to its highest level in two months as stronger domestic data and a narrower Canada-U.S. bond yield gap supported the currency.
Loonie Gains on Stronger Domestic Data
The Canadian dollar rose 0.4% to 1.3875 per U.S. dollar, or 72.07 U.S. cents, after reaching its strongest intraday level since June 3 at 1.3865. The currency gained 0.5% for the week, marking its third consecutive weekly advance.
The move was supported by Canadian manufacturing data showing factory sales increased 0.1% in June from May, marking the fifth consecutive month of gains. Sales volumes also rose 1.2% during the month.
Bond Yield Gap Narrows
The gap between Canada’s two-year bond yield and the U.S. equivalent narrowed by about 17 basis points this month to 120 basis points in favor of the U.S. note.
A smaller yield gap can influence currency markets by reducing the relative advantage of holding U.S. dollar assets compared with Canadian dollar assets.
U.S. Retail Data Weighs on Dollar
The U.S. dollar weakened against a basket of major currencies after data showed U.S. retail sales unexpectedly declined in July.
Scotiabank strategists Shaun Osborne and Eric Theoret said the weaker U.S. retail sales data and stronger-than-expected Canadian manufacturing sales have supported a shift in relative economic data trends, which could continue influencing the exchange rate.
