TORONTO: The Canadian dollar firmed modestly against the greenback on Friday, taking its cue from calmer global markets and a rise in oil prices at the end of a volatile week.
The loonie gave a muted reaction to data that showed Canada's inflation rate came in at the Bank of Canada's target of 2 percent in September, reinforcing analysts' expectations that the central bank will maintain its neutral stance in its policy statement next week.
The Canadian dollar was in consolidation phase after being rocked along with other financial markets this week by worries over weak global demand and a selloff in oil prices.
"It will be more financial market developments that will influence any move in the currency," said Paul Farley, assistant chief economist at Royal Bank of Canada in Toronto.
"If we see any recovery in oil prices, it could result in a bit of upward pressure on the Canadian dollar."
The Canadian dollar was at C$1.1242 to the greenback, or 88.95 US cents, stronger than Thursday's close of C$1.1248, or 88.90 US cents.
The C$1.1230 level has been providing support for the US dollar-Canadian dollar in recent sessions, and if it is unable to extend below that level, the pairing may see a small squeeze higher, said Shaun Osborne, chief currency strategist at TD Securities in Toronto.
Attention at home was shifting towards the Bank of Canada's policy statement to be released Wednesday, along with its updated economic projections. Investors will be looking for any reaction from the bank to the recent market turmoil.
Markets were taking some comfort from supportive comments from central bankers in Europe, as well as a top Fed official who said Thursday that the Fed may want to keep up its bond-buying stimulus for now. The program is expected to wind down later this month.
In a speech early Friday, Federal Reserve Chair Janet Yellen said the growth of income and wealth inequality caused her great concern. She did not comment on recent market volatility or on monetary policy.
Canadian government bond prices were lower across the maturity curve, with the two-year down 5 Canadian cents to yield 0.955 percent and the benchmark 10-year down 13 Canadian cents to yield 1.942 percent.
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