TORONTO: The Canadian dollar strengthened against its US counterpart on Friday after domestic data showing a record high for exports boosted bets for another Bank of Canada interest rate hike as soon as next month.
Canadian exports shrugged off the effects of US metals tariffs to rise 4.1 percent in June, cutting the country's trade deficit to its lowest in 17 months at C$626 million, Statistics Canada data indicated.
"Bullish for the C$, bearish for fixed income, as the data will have markets adding a bit of weight to the odds for a September hike," said Avery Shenfeld, chief economist at CIBC Capital Markets.
The Bank of Canada hiked its benchmark interest rate by 25 basis points in July to 1.50 percent, its fourth increase in a year. Chances of another increase in September nudged up to more than 30 percent from about 25 percent before the trade data, the overnight index swaps market showed.
At 9:23 a.m. EDT (1323 GMT), the Canadian dollar was trading 0.3 percent higher at C$1.2988 to the greenback, or 76.99 US cents. On Wednesday, the currency touched its strongest in nearly seven weeks at C$1.2975.
Gains for the loonie on Friday came as US job growth slowed more than expected in July and China announced retaliatory tariffs on $60 billion worth of US goods.
Canada, which has its own trade feud with the United States, runs a current account deficit, so its economy could be hurt if the flow of trade or capital slows.
The price of oil, one of Canada's major exports, steadied as the market focused on bearish longer term factors. US crude prices were down 0.2 percent at $68.86 a barrel.
Canadian government bond prices were mixed across a flatter yield curve, with the two-year down 1.5 Canadian cents to yield 2.102 percent and the 10-year rising 5 Canadian cents to yield 2.361 percent.
The gap between Canada's 2-year yield and its US equivalent narrowed by nearly 1 basis point to a spread of 56.4 basis points in favor of the US bond, its narrowest since June 1.
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