The Canadian dollar flirted with multiyear lows against its US counterpart on Friday, dropping with oil prices as global risk sentiment sank following manufacturing data from China that signaled slowing economic growth in the world's biggest energy consumer. The gloom that swept through equity and commodity markets around the world overshadowed Canadian data that had helped give the currency a bounce earlier in the day.
"In terms of USD/CAD, I think it comes down to today's action in equities. It doesn't have a whole lot to do with the Canadian data," said Lennon Sweeting, currency strategist at USForex in Toronto. "Markets are having a tough time not focusing on China and growth concerns in China, so that's why we're seeing such a surge in dollar strength right now against the loonie."
The Canadian dollar finished at C$1.3169 to the greenback, or 75.94 US cents, sharply weaker than the Bank of Canada's official close on Thursday of C$1.3081, or 76.45 US cents. The currency has been fairly range-bound through August, failing to sustain trading above C$1.32. It weakened to C$1.3193 on Friday, however, not far from the 11-year low of C$1.3213 touched earlier this month.
The price of oil, a key Canadian export, suffered its eighth straight week of declines, the longest losing streak since 1986. US crude ended 2 percent lower, and at one point traded below $40 a barrel for the first time since the 2009 financial crisis. The loonie had briefly rallied on Friday after the release of Canadian inflation and retail sales data, but it pulled back as investors digested the details.
The annual inflation rate in July rose 1.3 percent, just shy of the 1.4 percent forecast by economists, as higher prices for food and clothing offset cheap energy prices. Retail sales rose 0.6 percent in June, topping expectations for a 0.2 percent rise. Volumes were flat, however. Canadian government bond prices were higher across the maturity curve, with the two-year price up 3 Canadian cents to yield 0.334 percent and the benchmark 10-year climbing 20 Canadian cents to yield 1.269 percent. The Canada-US two-year bond spread narrowed to -28.7 basis points, while the 10-year spread narrowed to -77.6 basis points.