Canadian dollar gains with oil price jump, dovish Fed minutes

Wed Apr 6, 2016 5:05pm EDT
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By Alastair Sharp

TORONTO (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Wednesday as oil prices jumped 5 percent and minutes from the most recent U.S. Federal Reserve meeting confirmed a dovish tone.

The loonie, as the Canadian currency is colloquially known, had rallied sharply since mid-January but has mostly traded in a tight C$1.30-C$1.32 range so far this month.

"We're consolidating for now, we think that's the right play for dollar/Canada," said Bipan Rai, director of foreign exchange strategy at CIBC Capital Markets.

Fed policymakers last month debated an April interest rate hike, though a consensus emerged that risks from a global economic slowdown warranted a cautious approach, the minutes showed.

The Canadian dollar CAD=D4 settled at C$1.3094 to the greenback, or 76.37 U.S. cents, stronger than Tuesday's close of C$1.3157, or 76.01 U.S. cents.

Rai said the direction of the loonie is largely dependant on the Fed's next moves, which CIBC expects could include two rate hikes this year, a more aggressive path than the broader market is anticipating.

"The market, in our view, is mispricing the Fed," he said.

Meanwhile prices for oil, a major Canadian export, surged by the most in three weeks after the U.S. government reported a surprise draw in domestic crude stockpiles.   Continued...

A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015.    REUTERS/Mark Blinch