THE Canadian dollar rose against its US counterpart on Friday (May 31) as a drop in US bond yields offset increased bets that the Bank of Canada (BOC) would begin cutting interest rates dring the week starting Jun 3, following the release of weaker-than-expected Canadian GDP data.
The loonie was 0.3 per cent higher at 1.3640 to the US dollar, after trading in a range of 1.3620 to 1.3689. For the week, the currency was up 0.2 per cent.
“The CAD is holding a minor gain on a soft-looking USD on the week,” Shaun Osborne, chief currency strategist at Scotiabank, said in a note.
The “saving grace” for the currency on Friday was weaker-than-expected US personal spending data that weighed on US yields and the greenback, Osborne said.
The US dollar and Treasury yields fell as data showed US inflation tracked sideways in April and consumer spending weakened.
The Canadian economy expanded at a slower-than-expected annualised rate of 1.7 per cent in the first quarter, while the pace of fourth-quarter growth was revised to 0.1 per cent from 1.0 per cent reported initially.
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Chances that the BOC would lower its benchmark interest rate from the current level of 5 per cent at a policy decision on Jun 5 climbed to 80 per cent from 66 per cent before the GDP report, swaps market data showed.
Failure to cut would risk the bank “keeping policy overly restrictive and having to embark on a much more aggressive easing cycle into year-end”, said Simon Harvey, head of FX analysis for Monex Europe and Monex Canada.
“A more dovish outlook for Canadian rates reinforces our bearish stance on CAD,” Harvey added.
Canadian bond yields fell across the curve. The 10-year was down 7.1 basis points at 3.631 per cent, extending its pullback from a four-week high of 3.783 per cent that it hit during Thursday’s session. REUTERS
