Canadian dollar strengthens

The Canadian dollar strengthened on Friday against the greenback, padding its gains for the quarter, as data showing robust domestic growth in January raised prospects of an earlier-than-expected Bank of Canada interest rate hike. Canada's economy expanded by a greater-than-expected 0.6 percent in January from December, indicating first-quarter growth will be stronger than expected. Analysts in a Reuters survey had forecast 0.3 percent growth.
"Economic numbers are showing a stronger-than-expected Canadian economy and therefore potential for the Bank of Canada to move a little bit earlier than we thought," said Hosen Marjaee, senior managing director, Canadian fixed income at Manulife Asset Management. A majority of economists polled by Reuters in February say the central bank will wait until 2018 before raising rates. On Tuesday, Bank of Canada Governor Stephen Poloz defended the bank's cautious outlook on monetary policy tightening, which contrasts with the Federal Reserve's hike this month and plans for more.
But the GDP data "really makes it hard to imagine the Bank of Canada sounding overly dovish in April," said Andrew Kelvin, senior rates strategist at TD Securities. The central bank's next interest rate decision and Monetary Policy Report are due on April 12. The Canadian dollar ended at C$1.3299 to the greenback, or 75.19 US cents, stronger than Thursday's close of C$1.3334, or 75.00 US cents.
The currency traded in a range of C$1.3284 to C$1.3368. Prices of oil, one of Canada's major exports, rose for the fourth straight day, adding to support for the loonie. US crude oil futures settled up 25 cents at $50.60 a barrel. For the week, the loonie rose 0.6 percent. It finished the first quarter with a 1 percent gain after rising more than 3 percent in 2016. Still, speculators have increased bearish bets on the Canadian dollar to the most since March 2016, data from the Commodity Futures Trading Commission and Reuters calculations showed. Canadian dollar net short positions increased to 28,217 contracts as of March 28 from 24,403 contracts a week earlier.
Canadian government bond prices were mixed across the yield curve, with the two-year flat to yield 0.751 percent and the 10-year rising 9 Canadian cents to yield 1.627 percent. The difference between Canadian and US 2-year yields narrowed by 2.4 basis points to a spread of -51.1 basis points as Canadian government bonds underperformed.