The Canadian dollar strengthened to a near five-month high against its U.S. counterpart on Wednesday as oil prices climbed and investors adjusted to the prospect of interest rate cuts by the Federal Reserve.
The U.S. central bank signalled last Wednesday that it could ease interest rates as early as July due to growing risks to the U.S. economy, especially related to the trade war between Washington and Beijing.
“I think the market is still reeling from last week’s big Fed move,” said Erik Bregar, head of FX strategy at the Exchange Bank of Canada.
The Bank of Canada has also worried about trade conflicts. Money markets see about a 50 per cent chance of a rate cut this year by the central bank, but that is much less easing than expected from the Fed.
Adding to support for the loonie, the price of oil, one of Canada’s major exports, was buoyed by U.S. government data that showed a larger-than-expected drawdown in crude stocks. U.S. crude oil futures settled 2.7 per cent higher at $59.38 a barrel.
At 2:44 p.m., the Canadian dollar was trading 0.4 per cent higher at 1.3118 to the greenback, or 76.23 U.S. cents. The currency touched its strongest intraday level since Feb. 5 at 1.3108.
The loonie rose despite Beijing on Tuesday halting beef and pork imports from Canada, citing falsified paperwork. Unknown actors are using bogus certificates to smuggle Canadian meat into China, Trade Minister Jim Carr said on Wednesday.
Canadian government bond prices were lower across the yield curve in sympathy with U.S. Treasuries. The two-year fell 9.5 cents to yield 1.454 per cent and the 10-year declined 59 cents to yield 1.497 per cent.
The 10-year yield touched its highest intraday since June 12 at 1.499 per cent.
Canadian gross domestic product data for April is due for release on Friday.
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