Canadian Dollar Gains on High Oil and Weak US Jobs

The commodity-linked Canadian dollar surged to a three-week high against its U.S. counterpart on Friday, driven by a dramatic rise in energy prices and underwhelming labor data from the United States. The USD/CAD exchange rate saw the loonie trading 0.5% higher at 1.3610 per U.S. dollar, after reaching an intraday peak of 1.3598, its strongest level since mid-February. The primary catalyst for the currency's strength was a sharp increase in Brent Crude Oil, which jumped 11% to settle at $89.94 a barrel. This price action follows the halting of energy exports through the Strait of Hormuz due to ongoing regional tensions. As oil remains a cornerstone of the economy in Canada, the price spike is expected to significantly enhance national economic performance and increase government tax revenue. Amo Sahota, director at Klarity FX, highlighted the impact of the geopolitical situation involving Iran on market sentiment. > Taken along with the prospects that the Iran conflict is widening and timelines extending, that’s a boost to Canadian treasuries. Sahota also pointed to shifting expectations regarding U.S. interest rates following a disappointing employment report. The U.S. economy unexpectedly shed jobs in February, pushing the unemployment rate up to 4.4%. This potential deterioration in labor market conditions has placed the Federal Reserve in a complex position as it balances rising inflation risks against cooling employment. The Canadian dollar's performance was even more pronounced against other G10 currencies, particularly those of nations that rely heavily on oil imports. The loonie posted a 2.1% weekly gain against the euro, its most significant advance since early last year, impacting the EUR/CAD cross. Domestic economic indicators further supported the currency's climb. The seasonally adjusted Ivey Purchasing Managers Index rose to 56.6 last month from 50.9 in January, marking its highest reading since September. In the bond market, the Canadian 10-year yield increased by 2.5 basis points to 3.384%, while the yield gap between Canadian and U.S. notes narrowed to 73.7 basis points.