By Fergal Smith
TORONTO (Reuters) - The Canadian dollar rose to its highest level in more than three weeks against its U.S. counterpart on Friday, and posted its second straight weekly gain as recent volatility in global financial markets continued to subside.
The loonie traded 0.3% higher at 1.2730 to the greenback, or 78.55 U.S. cents, after touching its strongest since May 5 at 1.2729. For the week, the currency was up 0.8%.
"The risk mood is clearly a big driver of the CAD's performance but firm commodities and modestly supportive (interest rate) spreads are perhaps adding to CAD tailwinds," strategists at Scotiabank, including Shaun Osborne, said in a note.
U.S. stock market benchmark the S&P 500 index was set for its best weekly gain since mid-March as upbeat earnings, strength in consumer spending and signs of inflation peaking eased worries about a sharp slowdown in economic growth.
Oil, one of Canada's major exports, was up 0.5% at $114.70 a barrel as signs of a tight market supported prices ahead of the U.S. Memorial Day holiday weekend, the unofficial start of the peak U.S. summer demand season.
Gains for the loonie came ahead of a Bank of Canada interest rate decision next Wednesday. The central bank is expected to hike by half a percentage point for a second straight meeting to tackle soaring inflation.
Canadian government bond yields were mixed across the curve. The 10-year was little changed at 2.793%, after touching a four-week low of 2.743% on Wednesday.
(Reporting by Fergal Smith; editing by Jonathan Oatis and Richard Chang)