The Canadian dollar rose on Thursday against its US counterpart as crude oil prices rallied, ending a year in which it weakened by 16 percent and delivered its worst performance since the global financial crisis of 2008. Corporate buying interest added to support for the currency in thin markets, according to Don Mikolich, executive director, foreign exchange sales at CIBC Capital Markets.
Foreign exchange desks were expected to close early ahead of the New Year's Day holiday, while the Bank of Canada also posted its official closing rate early. The loonie, as Canada's currency is colloquially known, fell 16 percent to touch an 11-year low in 2015, pressured by deep losses for crude oil prices and two rate cuts from the Bank of Canada, while the US Federal Reserve hiked rates for the first time in more than nine years.
Oil prices rose on Thursday, but suffered a second year of steep declines after a race to pump by Middle East crude producers and US shale oil drillers created an unprecedented global glut that may take through 2016 to clear. US crude prices settled at $37.04 a barrel, up 1.20 percent, while Brent crude added 2.88 percent to $37.51. The Canadian dollar closed at C$1.3840 to the greenback, or 72.25 US cents, stronger than Wednesday's close of C$1.3885, or 72.02 US cents.
The currency's strongest level of the session was C$1.3824, while its weakest level was C$1.3903. It had hit its weakest level in more than 11 years on December 18 at C$1.4003. Bank of Canada Governor Poloz will speak on January 7 in Ottawa, the last scheduled appearance by a Bank of Canada policymaker before the release of the interest rate announcement and Monetary Policy Report on January 20. The market has been leaning toward further rate cuts in the face of depressed crude oil prices and loss of momentum for growth.
"Data has been on the soft side," said Mikolich, but "a weaker currency takes a little while to filter through the economy." He does not foresee another rate cut. Canadian government bond prices were higher across the maturity curve, although lagging gains for Treasuries. The two-year price rose 1.5 Canadian cents to yield 0.476 percent and the benchmark 10-year was up 8 Canadian cents to yield 1.393 percent. The Canada-US two-year bond spread was 1.9 basis points narrower at -57.6 basis points, while the 10-year spread was 2.7 basis points narrower at -87.6 basis points, trimming recent outperformance for Canadian government bonds.