Canadian dollar gains for 9th day on favorable yield spreads

The Canadian dollar gains against the USD. It was trading 0.4% higher at 1.2477 to the USD, or 80.15 US cents, after touching its strongest intraday level since Jan. 20 at 1.2471.

It was the ninth consecutive day of gains for the Canadian currency, which is the longest winning streak since August 2016. For the week, the currency was up 1%. Front-end yield spreads are back to favoring the CAD today after a brief flip this morning, while the recent jump higher in crude oil prices is also helping bullish sentiment.

Canada’s 2-year yield soared 19.5 basis points to 2.337%, its highest level since November 2018. The gap between it and the equivalent US rate widened to 4.3 basis points in favor of the Canadian bond, after moving on Thursday above zero for the first time since Feb. 18.

The Bank of Canada is prepared to act “forcefully” with rate hikes to return inflation to target, particularly as price pressures broaden amid tight labor markets and booming demand, Deputy Governor Sharon Kozicki said. Money markets expect Canada’s central bank to raise interest rates to about 2.5% this year to fight inflation.

Earlier this month, the BoC hiked for the first time since October 2018, lifting its policy rate by a quarter of a percentage point to 0.50%. The price of oil, one of Canada’s major exports, rebounded from early losses as a missile attack hit Saudi Arabia’s state-run oil company Aramco’s storage facility.