May 5, 2020 / 1:40 PM / a month ago

Canadian dollar rallies along with stocks on easing lockdowns

TORONTO (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Tuesday as the easing of coronavirus-induced lockdowns in some countries boosted investor sentiment and the price of oil.

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

Canada runs a current account deficit and is a major exporter of oil, so the loonie tends to be sensitive to the global flow of trade and capital.

Oil is a supporting factor for the Canadian dollar, “but mostly I think it’s just the risk-on move,” said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets.

Wall Street’s main indexes and oil rallied on hopes for a recovery in economic activity as some European and Asian countries along with several U.S. states began to ease restrictions that were put in place to contain the coronavirus pandemic.

U.S. crude oil futures CLc1 were up about 20% at $24.49 a barrel.

The Canadian dollar CAD=D4 was trading 0.4% higher at 1.4025 to the greenback, or 71.30 U.S. cents. The currency, which had been pressured in recent days by fears of a reignited U.S.-China trade dispute, traded in a range of 1.4008 to 1.4094.

The gain for the loonie came as official data showed that Canada’s trade deficit widened less than expected to C$1.4 billion in March from C$0.9 billion in February as both exports and imports declined.

“The extent of the declines in both exports and imports was not as pronounced as expected,” said Ryan Brecht, a senior economist at Action Economics. “However, exports and imports should see sharp declines in April as the economy saw a plunge in activity due to the stay-at-home measures implemented to slow the pandemic.”

Canada will invest C$252 million to help farmers and food processors weather the coronavirus outbreak, Prime Minister Justin Trudeau said, but industry groups say the funding falls far short of what is needed.

Ottawa is rolling out about C$300 billion of economic support measures, while the Bank of Canada has slashed interest rates to 0.25%, matching a record low, and begun a large-scale asset purchase program for the first time.

On Monday, Bank of Canada Senior Deputy Governor Carolyn Wilkins said the bank stood ready to adjust its asset purchases to support a lasting recovery.

Canadian government bond yields edged higher across much of a flatter curve on Tuesday, with the 2-year CA2YT=RR up 1.8 basis points at 0.331%.

Canada’s jobs report for April is due on Friday.

Reporting by Fergal Smith; Editing by Andrea Ricci and Peter Cooney

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