Canadian Dollar Hits Five-Week High on Bets for Bank of Canada Hike

what happened

The Canadian dollar strengthened to a five-week high against the US currency on Friday, supported by higher oil prices and solid domestic retail sales data, Reuters reported. The loonie gained 0.1% to 1.40 per US dollar, or 71.43 US cents, after touching an intraday peak of 1.3969. If it closes higher, it would extend its winning run to seven sessions, the longest since March 2022.

Canadian retail sales climbed 1.2% in August from July, while a preliminary estimate pointed to a 0.7% rise in September. Desjardins analyst Oskar Stone said the figures suggest third-quarter GDP growth of about 2%. Most economists polled by Reuters expect the Bank of Canada to lift its benchmark rate by 25 basis points to 2.50% on October 28, and investors put the odds of that move at roughly 80%.

US crude futures settled 3.8% higher at 103.27 dollars a barrel after Houthi attacks in Saudi Arabia raised concern about further Middle East supply disruption. Canadian 10-year bond yields rose 5.1 basis points to 3.838%, tracking US Treasuries.

why it matters

Several signals point the same way for markets: a resilient economy, expectations of tighter monetary policy and rising yields are supporting the Canadian currency. Oil is one of Canada's major exports, so raw material prices feed directly into the loonie. The Bank of Canada decision next week will be a key event for USD/CAD and Canadian bonds.

market impact

CAD and USD/CAD: rate hike bets and higher oil prices support the Canadian dollar

tags

instruments