Thursday, 15 October 2015 03:58
OTTAWA: The Canadian dollar strengthened by nearly 1 percent against the greenback on Wednesday, helped by a stabilization in oil prices and as investors second-guessed whether the Federal Reserve will raise interest rates this year as had been anticipated.
The loonie resumed its recent rally after a round of disappointing US economic data, as well as worries about a slowdown in the Chinese economy added to some analysts’ views that the Fed might wait until next year to begin lifting rates.
Meanwhile, the Fed’s Beige Book of anecdotal information on business activity showed that labor markets continued to tighten but there was little impact on wage growth.
Recent comments from Fed policymakers have also suggested a split within the central bank.
“The tone from some of the speakers that were out yesterday and Monday is painting a picture that suggests they’re in no rush down stateside,” said Don Mikolich, executive director of foreign exchange at CIBC World Markets.
The uncertainty surrounding the Fed’s timeline sent the US dollar to a seven-week low against a basket of currencies to the benefit of the Canadian dollar. The move helped the loonie break through technical resistance around the C$ 1.30 area.
The Canadian dollar ended the North American trading session at C$ 1.2922 to the greenback, or 77.39 US cents, stronger than the Bank of Canada’s official close of C$ 1.3019, or 76.81 US cents.
The loonie has gained nearly 3 percent this month so far, though it is still down more than 11 percent since the start of the year as it has been hit by the drop in oil prices and two interest rate cuts from the Bank of Canada.
But a pause in oil’s decline on Wednesday gave the Canadian dollar some respite. The loonie has been highly sensitive to the price of oil, which is a major export for Canada.
Crude oil settled down 2 cents at $ 46.64 a barrel as it remained pressured by concerns of a growing supply glut.
Canadian government bond prices were higher across the maturity curve, with the two-year up 8 Canadian cents to yield 0.521 percent and the benchmark 10-year jumping C$ 1.18 to yield 1.392 percent.
The Canada-US two-year bond spread was -3.60 basis points, while the 10-year spread was -58.2 basis points.
