FX.co ★ Canadian Dollar Gains for Third Straight Week

The Canadian dollar strengthened to 1.39 per USD, marking a third straight weekly gain as yield spreads narrowed. Domestic manufacturing data reinforced the recent convergence between US and Canadian bond yields, with the spread between Canada’s 2‑year yield and its US counterpart shrinking by about 17 basis points so far this month.

Canadian factory sales edged up 0.1% in June from May, extending their winning streak to five consecutive months, while sales volumes rose a more robust 1.2%. In contrast, US retail sales unexpectedly posted their largest monthly decline in more than a year in July.

Recent figures also point to a firmer Canadian labor market alongside softening US employment conditions. This combination has dampened expectations for a Federal Reserve rate hike this year, while bolstering the likelihood of a Bank of Canada increase if elevated energy prices persist.

Canada’s economy is estimated to have grown at an annualized pace of 3.4% in the second quarter, significantly outpacing the Bank of Canada’s 2.5% forecast.