May 27, 2020 / 1:49 PM / a month ago

Loonie advances to 2-1/2-month high as risk appetite climbs

TORONTO (Reuters) - The Canadian dollar strengthened against the greenback on Wednesday to its highest level in about two-and-a-half months as rising risk appetite helped to offset a pullback in oil prices.

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

Shares on Wall Street rose as hopes that the global economy would recover from the coronavirus crisis overshadowed worries of tensions between the United States and China.

Canada runs a current account deficit so the loonie tends to benefit from an improved outlook for the global flow of capital.

“There’s a bit more of a general risk-on tone,” said Scott Lampard, head of global markets at HSBC Bank Canada. “I think there is a bit of a distorted effect in risk assets as a result of a huge amount of liquidity that is surging through markets.”

The Bank of Canada along with other major central banks has slashed interest rates and is engaged in a large-scale bond-buying program.

The Canadian dollar was up 0.2% at 1.3755 to the greenback, or 72.70 U.S. cents. The currency touched its strongest intraday level since March 12 at 1.3727.

U.S. crude oil futures settled 4.5% lower at $32.81 a barrel, pressured by U.S.-China tensions. Still, oil has rebounded from extreme low levels in April.

The currency market is seeing less “fiscal strain” for Canada now that oil has rebounded, Lampard said.

Canada’s immigration minister expects the flow of people coming to live and work in the country to be a driver of economic growth following the coronavirus crisis, but economists say there may be fewer jobs waiting for them.

Canadian housing starts will likely see a decline of 51% to 75% in 2020 from pre-COVID-19 levels, the national housing agency said.

Canadian government bond yields were mixed across a flatter curve on Wednesday, with the 2-year up 1.3 basis points at 0.321%.

Reporting by Fergal Smith; Editing by Steve Orlofsky and Grant McCool

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