TORONTO (Reuters) – The Canadian dollar strengthened to its highest in nearly three weeks against its U.S. counterpart on Tuesday as oil prices rose and investors grew more hopeful that the global economy would see signs of recovery from the coronavirus crisis.
Canada runs a current account deficit and is a major exporter of commodities, such as oil, so the loonie tends to be sensitive to the global flow of trade and capital.
Positive news on the development of a possible COVID-19 vaccine has supported “hopes for the reopening of global economies,” said Ronald Simpson, managing director, global currency analysis at Action Economics.
That has led to the reversal of some “safe-haven flows” into the U.S. dollar, he said.
The greenback <.DXY> lost ground against a basket of major currencies, while U.S. crude oil futures were up 1.7% amid signs that producers are cutting output as promised.
The Canadian dollar was trading 0.3% higher at 1.3900 to the greenback, or 71.94 U.S. cents. The currency touched its strongest intraday level since April 30 at 1.3867.
The gain for the loonie came as select retailers and auto dealerships in Ontario, Canada’s most populous province, opened their doors to customers after two months of lockdown.
Canada’s inflation report for April is due on Wednesday, with economists expecting the consumer price index to show an annual decline of 0.1%. Bank of Canada Deputy Governor Timothy Lane is also due to speak.
Since March, the central bank has slashed interest rates to near zero and begun its first ever large-scale bond buying program.
Canadian government bond yields rose across a steeper yield curve on Tuesday, playing catch-up after Monday’s Victoria Day holiday. The 10-year yield was up 6.4 basis points at 0.606%.
(Reporting by Fergal Smith; editing by Jonathan Oatis and Dan Grebler)
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