The Canadian dollar strengthened against its U.S. counterpart on Friday, with the currency rebounding from an eight-day low it hit the previous session as investor appetite for risk increased.
Global stocks gained as a waning bond rally and news of potential German economic stimulus brought buyers back to the market at the close of a turbulent week.
“I think the currency is primarily being driven by an overall interest in equity markets, so call it a little bit of return to global appetite for risk,” said Brad Schruder, director of corporate sales and structuring at BMO Capital Markets.
“When equity investors are skittish, the Canadian dollar tends to underperform, when there is a little bit of bullish sentiment with respect to equity markets, the Canadian dollar tends to track that very closely,” Schruder said.
Canada exports many commodities, including oil, so its currency tends to benefit from the bullish signal that rising stocks sends about the outlook for the global economy.
At 3:32 p.m., the Canadian dollar was trading 0.4 per cent higher at 1.3266 to the greenback, or 75.38 U.S. cents.
The currency, which on Thursday touched its weakest intraday level since Aug. 7 at 1.3339, was down 0.3 per cent for the week.
Speculators have cut their bullish bets on the Canadian dollar to the lowest in five weeks, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed. As of Aug. 13, net long positions had decreased to 14,200 contracts from 24,166 in the prior week.
Friday’s gain for the loonie came as the price of oil rose, ending a two-day losing streak. U.S. crude oil futures settled 0.7 per cent higher at $54.87 a barrel.
Meanwhile, foreign investors sold a net $3.98 billion in Canadian securities in June, led by federal bonds, domestic data showed. It was the third divestment in four months.
Canadian government bond prices were lower across a steeper yield curve, with the two-year down 3.5 cents to yield 1.328 per cent and the 10-year falling 36 cents to yield 1.141 per cent.
On Thursday, the 10-year yield touched its lowest intraday level since October 2016 at 1.083 per cent.
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