The commodity-linked Canadian dollar CADUSD strengthened against its U.S. counterpart on Monday as China vowed to stimulate its economy, but the move was limited ahead of an expected supersized interest rate cut by the Bank of Canada this week.
The loonie was trading 0.1 per cent higher at 1.4135 to the U.S. dollar, or 70.75 U.S. cents. It moved in a range of 1.4094 to 1.4175, holding just short of the 4-1/2-year low it posted on Nov. 26 at 1.4177.
The Australian CADAUD and New Zealand CADNZD dollars also notched gains. Like Canada, Australia and New Zealand are major commodity producers, so their currencies tend to be sensitive to global economic prospects.
“Risk-sensitive currencies are advancing against their safe-haven counterparts after Chinese authorities explicitly signalled more stimulus to come in the year ahead,” Karl Schamotta, chief market strategist at Corpay, said in a note.
China will implement more pro-active fiscal policy and moderately loose monetary policy next year, state media reported.
The price of oil, one of Canada’s major exports, rose 2 per cent to $68.54 a barrel. Copper futures were up 2.2 per cent and gold added 1.3 per cent.
The BoC will slash interest rates by half a percentage point for a second consecutive meeting on Wednesday, according to a majority of economists polled by Reuters.
“Glimmerings of a potential (Canadian) consumer rebound are evident in housing markets and retail sales numbers, but data in recent weeks has shown growth weakening and unemployment pushing higher – reducing the likelihood of an inflationary overheat,” Schamotta said.
Data on Friday showed that Canada’s unemployment rate climbed to 6.8 per cent in November, a near-eight-year high outside of the pandemic era.
Canadian bond yields moved higher across the curve, tracking moves in U.S. Treasuries ahead of key U.S. inflation data on Wednesday. The 10-year was up 5.2 basis points at 3.033 per cent.