The Canadian dollar was little changed against the greenback on Friday as the prospect of a Bank of Canada interest rate hike in July offset escalating trade tensions between Canada and the United States. At 4 p.m. EDT (2000 GMT), the Canadian dollar was near flat at C$1.2960 to the greenback, or 77.16 US cents. The currency traded in a range of C$1.2931 to C$1.3009.
"It is mostly about the two-way risks around the Bank of Canada presenting a view that they are going to most likely hike rates in July versus a very weak GDP report alongside the renewed tensions around trade and tariffs," said Mark McCormick, North American head of FX strategy at TD Securities. "It leaves us relatively bearish." President Donald Trump fired back at Canada after Ottawa and other American allies retaliated against Washington's steel and aluminium tariffs and he appeared to threaten possible action against Canada's lumber industry.
Trump also said he might prefer to end the North American Free Trade Agreement, which the United States is renegotiating with Canada and Mexico, in favour of two bilateral agreements. For the week, the loonie rose 0.2 percent. It was boosted on Wednesday by a more-hawkish-than-expected policy statement from the Bank of Canada.
Data on Thursday showed Canada's economy grew at a weaker-than-expected pace in the first quarter. But growth in the Canadian manufacturing sector accelerated in May to its fastest pace in more than seven years as new orders and inventories climbed, data on Friday showed. Speculators have cut bearish bets on the Canadian dollar, data from the US Commodity Futures Trading Commission and Reuters calculations showed. As of May 29, net short positions fell to 15,690 contracts from 26,212 a week earlier.
The price of oil, one of Canada's major exports, was pressured by a stronger US dollar on Friday. US crude oil futures settled 1.8 percent lower at $65.81 a barrel. The US dollar was helped by data showing US job growth accelerated in May. Canadian government bond prices were mixed across the yield curve, with the 10-year falling 1 Canadian cent to yield 2.247 percent. The gap between Canada's 10-year yield and its US equivalent widened by 7.9 basis points to a spread of -65.5 basis points, the widest since March 20.
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