Canadian dollar hits two-month high on factory data

The Canadian dollar rose to its strongest level in two months on Friday, supported by domestic manufacturing data and a narrowing gap between U.S. and Canadian bond yields.

The loonie traded 0.4% higher at 1.3875 per U.S. dollar, or 72.07 U.S. cents, after reaching its strongest intraday level since June 3 at 1.3865. The currency was up 0.5% for the week, marking its third consecutive weekly gain.

The gap between Canada’s 2-year yield and the U.S. equivalent narrowed by about 17 basis points this month to 120 basis points in favor of the U.S. note.

Canadian factory sales grew 0.1% in June from May, marking the fifth straight month of gains. Sales volumes rose 1.2%.

Separate data showed wholesale trade increased by 2.8% in June.

The U.S. dollar fell against a basket of major currencies after data showed U.S. retail sales unexpectedly declined in July.

"At the margin, Friday’s disappointing U.S. retail sales data and the better-than-expected Canadian manufacturing sales data sustain the recent shift in the trend of relative data surprises ... which will also feed through to the exchange rate," Shaun Osborne and Eric Theoret, strategists at Scotiabank, said in a note.