The Canadian dollar strengthened against its U.S. counterpart on Monday, clawing back half of its January decline, as oil prices rose and equity markets globally rebounded after a volatile start to the year.
The loonie was trading 0.5% higher at 1.2695 to the greenback, or 78.77 U.S. cents, after trading in a range of 1.2683 to 1.2777.
“The rally in CAD is being driven by the broader market’s tone, which is suggestive of risk appetite,” said Eric Theoret, global macro strategist at Manulife Investment Management.
“Oil prices and yield spreads remain supportive of the Canadian dollar.”
Stocks rallied as traders put aside concerns about inflation and the crisis in Ukraine to dip back in, but global equities were still headed for their worst January since 2016.
A supply shortage and political tensions helped oil prices notch their biggest monthly gain in almost a year. U.S. crude prices settled 1.5% higher on Monday at $88.15 a barrel.
Since the start of January, the loonie has weakened 0.5% as the prospect of faster interest rate hikes by the Federal Reserve bolstered the greenback against a basket of major currencies.
Still, speculators have raised their bullish bets on the Canadian dollar to the highest since July last year, data from the U.S. Commodity Futures Trading Commission showed on Friday.
Bank of Canada Governor Tiff Macklem and Senior Deputy Governor Carolyn Rogers will appear on Wednesday before the Senate banking committee. Last Wednesday, the central bank left its benchmark interest rate on hold at a record low of 0.25% but signaled that hikes are coming.
Canada’s jobs report for January, due on Friday, could provide further clues on the outlook for interest rates.
The Canadian 10-year yield eased 1.5 basis points to 1.744%.
(Reporting by Fergal Smith; Editing by Kirsten Donovan and Chizu Nomiyama)
