The Heavily Shorted Canadian Dollar Steadies Against US Counterpart
The Canadian dollar steadied against its US counterpart on Friday, with the currency holding on to a weekly gain as upbeat domestic retail sales data contributed to reduced expectations for Bank of Canada (BOC) interest-rate cuts.
Weekly Gain
The loonie was trading nearly unchanged at 1.3975 per US dollar, or 71.56 US cents, after moving in a range of 1.3959 to 1.4020. For the week, the currency was up 0.8 per cent, its biggest weekly gain since August.
Market Analysis
“The beginning of the week, the market was just crowded short,” said Erik Bregar, director of FX and precious metals risk management at Silver Gold Bull. “If you’re short, you need a lot of bearish fuel and it’s not there right now.”
Domestic Retail Sales
Canadian retail sales rose 0.4 per cent in September from August as consumers spent more at grocery stores and supermarkets, while preliminary data showed an October gain of 0.7 per cent.
Economic Data
It follows hotter-than-expected consumer price index data on Tuesday and the government’s proposal on Thursday of C$6.3 billion (S$6.1 billion) in new spending that analysts expect to boost the economy.
Interest Rate Expectations
Investors have largely set aside expectations for another unusually large half-percentage-point rate cut by the BOC next month, after the central bank cut by that magnitude in October.
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Market Pricing
By the end of 2025, the market is pricing in 75 basis points of further easing, down from 100 basis points before Tuesday’s inflation data.
Oil Prices
The price of oil, one of Canada’s major exports, settled 1.6 per cent higher at US$71.24 a barrel on the intensifying war in Ukraine this week, while the safe-haven US dollar soared against a basket of major currencies.
Yield
The Canadian 10-year yield was down 1.3 basis points at 3.445 per cent, after earlier touching its highest level since Jul 11 at 3.493 per cent.
Conclusion
The Canadian dollar has steadied against its US counterpart, with the currency holding on to a weekly gain as upbeat domestic retail sales data contributed to reduced expectations for Bank of Canada interest-rate cuts. The market is pricing in less easing, and oil prices have risen due to the intensifying war in Ukraine.
FAQs
Q: What was the Canadian dollar trading at on Friday?
A: The Canadian dollar was trading nearly unchanged at 1.3975 per US dollar, or 71.56 US cents.
Q: What was the weekly gain for the Canadian dollar?
A: The currency was up 0.8 per cent, its biggest weekly gain since August.
Q: What was the reason for the reduced expectations for Bank of Canada interest-rate cuts?
A: Upbeat domestic retail sales data contributed to reduced expectations for Bank of Canada interest-rate cuts.
Q: What was the price of oil on Friday?
A: The price of oil settled 1.6 per cent higher at US$71.24 a barrel.
Q: What was the Canadian 10-year yield at?
A: The Canadian 10-year yield was down 1.3 basis points at 3.445 per cent.
