Canadian dollar hits five-week high as data supports rate hike bets

The Canadian dollar strengthened to a five-week ​high against its US counterpart on Friday ‌as oil prices rose and domestic retail sales data supported expectations the Bank of Canada would raise interest rates next week.

The loonie was ⁠trading ​0.1% higher at 1.40 per US dollar, or 71.43 US cents, after touching its strongest intraday level since September 16 at 1.3969.

It left the currency on track for a ​seventh straight day of gains, which would be ‌the longest daily winning streak since March 2022.

For the week, the currency was up 1% — heading for its biggest weekly advance since April.

Canadian retail sales rose 1.2% in August from July, led by ‌higher sales ​at motor vehicle ‌and parts dealers, while a preliminary estimate showed sales increasing ​by 0.7% in September.

“Given the resilience in these ⁠spending numbers, we still believe the Bank of Canada ⁠is headed for a rate increase next week,” Oskar Stone, an analyst at ​Desjardins, said in a note, adding that the data points to third-quarter GDP growth of 2%.

The Bank of Canada will raise its benchmark interest rate by 25 basis points to 2.50% on October 28 and ⁠follow with one more hike by the end of March to pre-empt any further rise in inflation expectations, according to a majority of economists polled by Reuters.

Investors see a roughly 80% chance the BoC hikes next week. Bets on a hike ⁠have increased in recent days after hawkish comments ​from Governor Tiff Macklem and as Alberta voted by a large ⁠majority to remain part of Canada.

The price of oil, one of Canada’s ‌major exports, rose after Houthi attacks in Saudi Arabia stoked concern over ​further disruption to energy supplies from the Middle East. US crude oil futures settled 3.8% higher at $103.27 a barrel.

Canadian bond yields rose across the curve, tracking moves in US ​Treasuries. The 10-year was up 5.1 basis points at 3.838%.