Canadian Dollar Hits Two-Month High on Strong Manufacturing Data

The Canadian dollar has reached its strongest level in two months, driven by strong domestic manufacturing data and a narrowing gap between US and Canadian bond yields. The loonie traded 0.4% higher at 1.3875 per USD, or 72.07 cents, after reaching its intraday high since June 3 at 1.3865. This marks the currency's third consecutive weekly gain.

Canadian factory sales grew by a modest 0.1% in June compared to May, marking the fifth straight month of gains. Sales volumes rose by 1.2%, while wholesale trade increased by 2.8% in June. The US dollar fell against a basket of major currencies after data showed US retail sales unexpectedly declined in July.

Scotiabank strategists Shaun Osborne and Eric Theoret noted that the recent shift in relative data surprises, including better-than-expected Canadian manufacturing sales, will sustain the trend and influence the exchange rate. This development has narrowed the gap between the two currencies to 120 basis points in favor of the US note.