The Canadian dollar rebounded from a two-week low against its U.S. counterpart on Monday as oil prices rose and investors executed month-end hedging transactions, while a Bank of Canada interest rate decision was awaited midweek.
The loonie was trading 0.3% higher at 1.3855 per U.S. dollar, or 72.18 U.S. cents, after earlier touching its weakest intraday level since August 14 at 1.3911.
The Canadian dollar has rallied slightly today on a combination of month-end hedging flows and a small uptick in oil as the U.S. and Iran traded strikes over the weekend,” said Noah Buffam, an FX strategist at CIBC Capital Markets.
Investors often execute currency transactions around the end of the month to manage changes in their foreign exchange exposure due to portfolio movements.
The price of oil, one of Canada’s major exports, rose after a resumption of military action between the U.S. and Iran rekindled market concerns about global supply disruption. U.S. crude oil futures were trading 2.8% higher at $85.72 a barrel.
For the month, the loonie was on track to gain 1.2%, which would be its second straight monthly advance, as recent domestic data showed economic growth accelerating.
Speculators have reduced their bearish bets on the Canadian dollar, data from the U.S. Commodity Futures Trading Commission showed on Friday. Non-commercial net short positions fell to 121,522 contracts as of August 25, down from 158,166 in the prior week.
“Moving forward we expect the Canadian dollar will weaken once again, as the market refocuses on tariff risks and because we see risks that U.S. data outperforms near-term expectations,” Buffam said.
Earlier this month, the U.S. imposed new 50% tariffs on $20 billion of Canadian imports after talks between the two countries collapsed.
The Bank of Canada will keep its overnight rate at 2.25% on Wednesday and leave it unchanged for at least another year, according to a Reuters poll of economists.
Canadian bond yields moved higher across a steeper curve, tracking moves in U.S. Treasuries. The 10-year was up 2.9 basis points at 3.755%, trading near its highest level in two years.