Canadian dollar adds to weekly decline despite sharp GDP gain
FXC•Yields and dollar index move higher
The U.S. dollar was up 0.5% against a basket of major currencies.
Canadian bond yields moved higher across a flatter curve, with the 2-year increasing 4.5 basis points to 3.016%.
The gap between the 2-year yield and the U.S. equivalent widened by 6.4 basis points to about 132 basis points in favor of the U.S. note, its widest gap in more than three weeks.
Canadian dollar weakens despite strong GDP data
The Canadian dollar weakened to a nine-day low against its U.S. counterpart on Friday, as investors doubted that strong domestic GDP data would make a difference at an upcoming Bank of Canada policy decision and after hawkish comments by Federal Reserve Chair Kevin Warsh.
The loonie was trading 0.3% lower at 1.39 per U.S. dollar, or 71.94 U.S. cents, after touching its weakest intraday level since August 19 at 1.3908.
Tariffs, GDP and central bank expectations weigh on the loonie
For the week, the currency was headed for a 1% decline after the U.S. imposed new 50% tariffs on $20 billion of Canadian imports. It follows four straight weekly gains.
Canada's economy grew at an annualized rate of 3.3% in the second quarter, after a revised 0.3% increase in the first quarter, aided by a strong jump in exports and solid domestic demand.
"While impressive overall, there's not a lot to seriously move the needle bigger picture for the BoC," Douglas Porter, chief economist at BMO Capital Markets, said in a note.
"The BoC will likely wait and see how the economy handles the latest tariff spat - and how the tussle develops - before judging where rates need to go next," Porter said.
