Canadian dollar touches 80 US cents for first time in 10 months

Canada's dollar ended little changed against a broadly weaker US counterpart on Friday as oil turned slightly lower and as corporate hedgers sold the currency after it reached 80 US cents for the first time in nearly 10 months. The loonie, as Canada's dollar is commonly known, has rallied 17 percent from a 12-year low in January of C$1.4689, helped by better-than-expected domestic economic activity, fiscal stimulus and rebounding oil prices.
However, it had trouble on Friday breaking convincingly through C$1.2500, or 80 US cents, due to selling by corporate hedgers, said Blake Jespersen, managing director, foreign exchange sales at BMO Capital Markets. "80 (US) cents seems to be a nice psychological level for most people, so seeing a fair bit of resistance there," he added. Oil prices dipped after an early rise to 2016 peaks. US crude settled at $45.92 a barrel, down 0.24 percent.
Canada's economy contracted 0.1 percent in February, as expected, after climbing 0.6 percent in January. It leaves the economy on track to grow 3 percent in the first quarter, according to Richard Gilhooly, the head of rates strategy at CIBC Capital Markets. The US dollar fell against a basket of major currencies, including deep losses against the Japanese yen. The Canadian dollar ended at C$1.2548 to the greenback, or 79.69 US cents, little changed from Thursday's close of C$1.2549, or 79.69 US cents.
The currency's weakest level was C$1.2588, while it touched its strongest since July 1, 2015 of C$1.2497. A shift in expectations for the direction of Canadian interest rates has added to recent support for the loonie. Overnight index swaps (OIS) imply an 18 percent chance of a rate hike this year, a swing from the more than 50 percent chance of a cut seen at the beginning of March.
Speculators increased bullish bets on the loonie, Commodity Futures Trading Commission data showed. Net long Canadian dollar positions rose to 11,999 contracts in the week ended April 26 from 7,308 contracts in the prior week. Canadian government bond prices were lower across the maturity curve, with the two-year price down 4 Canadian cents to yield 0.692 percent and the benchmark 10-year falling 30 Canadian cents to yield 1.509 percent. The Canada-US 10-year spread was 3.8 basis points less negative at -32.4 basis points, its smallest gap since January 20, 2015, as Canadian government bonds underperformed.