The Canadian dollar rose to a nearly seven-week high against its U.S. counterpart on Tuesday as investors weighed a possible easing of global trade tensions and after data showed stronger-than-expected growth in the domestic economy.
Canada’s economy grew by 0.5 per cent in May, the biggest rise in a year, as industries recovered from a combination of bad weather and maintenance shutdowns in April, Statistics Canada said.
“The growth was broad, all of the major sectors were growing solidly,” said Ranko Berich, head of market analysis at Monex Canada and Monex Europe, who thinks that markets are underestimating prospects of another Bank of Canada interest rate hike as soon as September.
The central bank raised its benchmark interest rate earlier this month by 25 basis points to 1.50 per cent. Chances of another hike in September climbed to one in four from less than 20 per cent before the economic data, the overnight index swaps market indicated.
News of a possible easing of tariff tensions between the United States and China helped boost stocks on Wall Street.
Canada runs a current account deficit, so its economy could be hurt if the flow of trade or capital slows.
At 3:57 p.m. EDT (1957 GMT), the Canadian dollar was trading 0.2 per cent higher at $1.3006 to the greenback, or 76.89 U.S. cents.
The currency’s weakest level of the session was $1.3097, while it touched its strongest since June 14 at $1.2980.
For the month, the loonie was on track to rise 1 per cent.
The price of oil, one of Canada’s major exports, fell after a survey showed OPEC’s output hit a 2018 high in July. U.S. crude oil futures settled nearly 2 per cent lower at $68.76 a barrel.
Canadian government bond prices were lower across a steeper yield curve, with the two-year down 5 Canadian cents to yield 2.076 per cent and the 10-year falling 34 Canadian cents to yield 2.339 per cent.
The 10-year yield touched its highest intraday since May 25 at 2.347 per cent, while the gap between it and its U.S. equivalent narrowed by 4.9 basis points to a spread of 62.7 basis points in favour of the U.S. bond.