Canadian Dollar Posts Biggest Weekly Gain Since May as Greenback Slides
The Canadian dollar has recorded its most significant weekly gain since May, driven by a combination of broad-based weakness in the U.S. dollar and encouraging domestic economic data. This development highlights shifting dynamics in global currency markets amid ongoing geopolitical tensions.
Weekly Performance and Trading Levels
On Friday, the loonie extended its weekly advance, trading 0.5% higher at 1.3715 per U.S. dollar, which translates to 72.91 U.S. cents. During the session, it touched its strongest intraday level since January 2 at 1.3705. For the entire week, the Canadian currency appreciated by 1.5%, marking its most substantial weekly gain since May.
This performance comes as the U.S. dollar faced broad declines against a basket of major currencies. Investor concerns over intensifying geopolitical tensions have primarily impacted the greenback, with traders remaining vigilant about potential intervention in the yen market.
Economic Data and Market Sentiment
Supporting the Canadian dollar's movement, domestic data revealed that retail sales increased by 1.3% in November compared to October, with an annual rise of 3.1%. Preliminary estimates for December indicated a slight decline of 0.5% in retail sales, while manufacturing sales showed a 0.5% increase.
Market analysts attribute the currency's strength more to U.S. dollar weakness than to robust Canadian economic performance. Aaron Hurd, senior portfolio manager at State Street Global, noted, "I'd call it dollar weakness, not Canadian dollar strength." He pointed to ongoing risks, including tensions between Canadian Prime Minister Mark Carney and U.S. President Donald Trump, along with upcoming USMCA negotiations scheduled for review by July 1.
Broader Economic Context
The Bank of Canada is expected to maintain its overnight interest rate unchanged through 2026, according to a Reuters poll of economists. This consensus has strengthened compared to a month ago, reflecting expectations of steady economic growth with contained inflation.
Additionally, the price of oil, a crucial export for Canada, rose 2.7% to $60.98 a barrel due to concerns over supply disruptions in the Middle East. This increase provided further support for the commodity-linked Canadian dollar.
Bond Market Movements
In the bond market, Canadian yields moved higher across the curve. The 10-year bond yield increased by 2.9 basis points, reaching 3.440%. This movement aligns with broader market adjustments in response to economic data and currency fluctuations.
The combination of these factors underscores the interconnected nature of global financial markets, where currency movements are influenced by domestic economic indicators, geopolitical developments, and international trade dynamics.
