The Canadian dollar reached a six-week high on Friday, climbing 0.2% to 1.3955 per US dollar, as rising oil prices bolstered expectations of further interest rate hikes by the Bank of Canada. The loonie was on track for a 2% monthly gain, its largest since April, despite weak GDP data. Canada’s economy stagnated in August and contracted slightly in September, with third-quarter growth estimated at 1.3%, below the BoC’s projection of 2%.
Analysts downplayed the disappointing GDP figures, focusing instead on inflation risks driven by surging oil prices. Derek Holt, head of capital markets economics at Scotiabank, noted that the BoC prioritizes forward-looking indicators like oil, which surged 2.7% to $104.80 a barrel amid geopolitical tensions. The central bank raised its key rate to 2.50% on Wednesday, signaling potential further hikes to curb inflation.
Investors anticipate a 50% chance of another rate increase in December, with a move by January fully priced in. Canadian bond yields declined across the curve, with the 10-year yield dropping 2.1 basis points to 3.780%, as investors sought safe-haven assets like US Treasuries amid a tech stock selloff.