C$ strengthens to 10-day high as risk tolerance rises

Mon Jul 4, 2016 4:39pm EDT
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By Fergal Smith

TORONTO (Reuters) - The risk-sensitive Canadian dollar strengthened to a 10-day high against its U.S. counterpart on Monday as investors grew more comfortable with Brexit, while soft domestic data was insufficient to raise prospects of a Bank of Canada rate cut.

Gains for the loonie came as U.S. markets were closed for the July 4 public holiday.

"The market still seems to be coming to terms with the idea that the U.K. referendum is a U.K. or European event, rather than a global event, and all things risky are going up as a result," said Adam Cole, global head of FX strategy at RBC Capital Markets.

Expectation that the U.S. Federal Reserve will hold off from further rate hikes and that central banks in other parts of the world will ease monetary policy has aided a quick recovery in risk appetite, Cole said.

Domestic data continued to signal that Canada's economy is struggling to gain momentum.

The RBC Canadian Manufacturing Purchasing Managers' index (PMI) dipped to a seasonally adjusted 51.8 last month from 52.1 in May.

Canadian business sentiment remained subdued in the second quarter, the Bank of Canada's quarterly Business Outlook Survey showed.

However, the implied probability of a Bank of Canada rate cut this year dipped to 25 percent from a one-third-chance a week ago, overnight index swaps showed. [BOCWATCH]   Continued...

A Canadian dollar coin, commonly called a "Loonie" and an American dollar bill are seen in this staged photo in Toronto, March 17, 2010.   REUTERS/Mark Blinch