"It's all about oil," said Michael Goshko, Corporate Risk Manager at Western Union Business Solutions. Oil is one of Canada's major exports. Speculators increased net short positions in the Canadian dollar to 99,109 contracts as of May 23 from 98,000 a week earlier, data from the Commodity Futures Trading Commission and Reuters calculations showed.
Those investors who had been selling the loonie "got squeezed big time," Goshko said. The currency got a boost on Wednesday when the Bank of Canada was more upbeat than investors had expected as it left interest rates unchanged at 0.5 percent. At 4 pm EDT (2000 GMT), the Canadian dollar was trading at C$1.3460 to the greenback, or 74.29 US cents, up 0.2 percent. For the week, it rose 0.4 percent. The loonie has recovered from a 14-month low plumbed this month at C$1.3793. On Thursday, it touched its strongest in five weeks at C$1.3388.
Gains for the loonie came even as the US dollar climbed against a basket of major currencies. Data showed that US economic growth slowed less sharply in the first quarter than initially thought. Canada's gross domestic product data for the first quarter is due next week. Economists forecast that the economy grew at a 3.6 percent annualized pace after a strong expansion in the second half of 2016. Still, Canada sends 75 percent of its exports to the United States and could suffer badly from a renegotiation of the North American Free Trade Agreement or implementation of a proposed US border adjustment tax.
Some customers say they are seeing reduced spending by American companies due to trade uncertainty, Goshko said. Canadian government bond prices were higher across a flatter yield curve, with the 10-year rising 21 Canadian cents to yield 1.439 percent. The gap between the 2- and 10-year yields narrowed by 1.8 basis points to a spread of 72.6 basis points, its narrowest since November 8.