The Canadian dollar edged lower against the U.S. dollar on Friday, finishing the day at 1.3585 per U.S. dollar, or 73.61 U.S. cents, after trading within a range of 1.3551 to 1.3593. The small daily retreat - 0.1% - left the loonie with a 0.6% gain for the week, its fourth straight weekly advance.
Data released for April showed the S&P Global Canada Manufacturing Purchasing Managers' Index rose to 53.3 from 50.0 in March, reaching its highest reading since June 2022. The report noted that the conflict in the Middle East had prompted companies to build inventories, a factor that also added to inflationary pressures.
Preliminary national output figures published on Thursday indicated annualized growth of 1.7% in the first quarter, modestly ahead of the Bank of Canada’s 1.5% projection. These developments helped underpin demand for the Canadian currency through the week.
Monetary policy considerations remained a focus for markets. On Wednesday, the Bank of Canada said that should oil prices remain high and begin to push inflation upward, it might have to respond with consecutive interest rate increases. Swap market pricing reflected that possibility, with investors pricing in two rate hikes this year.
Oil, a key export for Canada, lost ground on Friday after Iran submitted its latest proposal for talks with the United States. U.S. crude futures settled nearly 3% lower at $101.94 a barrel, trimming a recent run-up in energy prices.
Canadian government bond yields moved lower across the curve. The 10-year yield fell 1.3 basis points to 3.530%, continuing its retreat from a one-month high of 3.623% reached on Wednesday.
In sum, stronger manufacturing activity and slightly better-than-expected economic growth supported the Canadian dollar over the week, while softer oil and easing yields limited further near-term appreciation.