TORONTO: The Canadian dollar weakened against its broadly firmer US counterpart on Friday as oil prices fell and after a speech by Federal Reserve Chair Janet Yellen bolstered the case for a US interest rate hike this summer.
The US dollar strengthened against a basket of major currencies after Yellen said the Federal Reserve should raise interest rates "in the coming months" if the economy picks up as expected and jobs continue to be generated.
The loonie was caught up in a "broad wave of US dollar buying," said Adam Button, currency analyst at ForexLive.
It may weaken further if there is follow-through buying of US dollars when investors return after a long weekend in the United States, he added.
Oil fell for a second day in a row as some investors took profit on a surge to seven-month highs. US crude oil futures settled 15 cents lower at $49.33 a barrel.
Speculators only modestly reduced bullish bets on the Canadian dollar, Commodity Futures Trading Commission data showed. Net long Canadian dollar positions fell to 20,047 contracts in the week ended May 24 from 22,706 contracts in the prior week.
The market has remained "stubbornly long" the Canadian dollar in the face of recent wildfires in Alberta and hawkish comments from Fed officials, said Button.
The Canadian dollar ended at C$1.3038 to the greenback, or 76.70 US cents, weaker than Thursday's close of C$1.2970, or 77.10 US cents.
The currency's strongest level of the session was C$1.2970, while its weakest was C$1.3068.
On Thursday, the loonie posted a one-week high at C$1.2912 as oil briefly moved above $50 a barrel and after the Bank of Canada was less dovish this week than some investors expected, signaling the impact on the economy of the Alberta wildfires will be transitory.
Canadian dollar-implied volatility, which traders use to price options on the currency, has tumbled since the interest rate decision and ahead of a US holiday on Monday. For 3-month options, implied volatility was at 9.415 percent on Friday, near its lowest since January.
Canadian government bond prices were lower across the maturity curve, with the two-year price down 6 Canadian cents to yield 0.649 percent and the benchmark 10-year falling 26 Canadian cents to yield 1.358 percent.
The Canada-US two-year bond spread was 1.2 basis points more negative at -26.2 basis points as US Treasuries underperformed.
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