Canadian Dollar Touches One-Month High as Crude Oil Prices Rally

The Canadian dollar reached a one-month peak against the U.S. dollar on Friday, buoyed by a significant jump in oil prices and a recalibration of market expectations for future Federal Reserve interest rate hikes.

Key Drivers

The primary catalyst for the loonie's strength was a surge in the price of crude oil, a key Canadian export. According to market data, U.S. crude oil futures settled 4.5% higher at $82.49 per barrel, extending recent gains amid reports of increased tensions between the U.S. and Iran in the Gulf.

Simultaneously, the currency benefited from a softer U.S. dollar. Recent inflation data from the United States has led investors to scale back expectations for further interest rate increases by the Federal Reserve, reducing the U.S. dollar's yield advantage over other major currencies.

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Market Performance

The Canadian dollar, or loonie, traded 0.2% higher at 1.4015 per U.S. dollar, which is equivalent to 71.35 U.S. cents. During the session, it touched 1.4006, its strongest intraday level since June 17.

For the week, the currency advanced 1%, marking its largest weekly gain since April. This performance was also reflected in the bond markets, where the spread between Canada’s 2-year government bond yield and its U.S. equivalent narrowed by 3.2 basis points to approximately 130 basis points, the tightest differential since June 16.