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C$ edges higher as risk-on conditions prevail

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

(Reuters) - The Canadian dollar edged higher against its U.S. counterpart in choppy trading on Thursday as investors continued to bid up riskier assets following the U.S. Federal Reserve’s approval of a new strategy revising its established practice of preemptively lifting interest rates to head off inflation.

The Canadian dollar CAD= was at C$1.3127 to the greenback, or 76.18 U.S. cents, higher than Wednesday's close of C$1.3139, or 76.11 U.S. cents.

Earlier in the session, the loonie hit a 7-month high of C$1.3101, as investors continued to exhibit a robust appetite for risk.

Stability in the price of oil, one of Canada’s main exports, along with robust investor appetite for riskier assets, has helped support the Canadian dollar in recent sessions.

The Federal Reserve on Thursday rolled out an aggressive new strategy to restore the United States to full employment and lift inflation back to healthier levels in a world where it now believes that “downward risks to employment and inflation have increased.”

Earlier this week, Bank of Canada Deputy Governor Lawrence Schembri said the economic shock of the pandemic will test public confidence in the bank’s inflation target.

“It remains to be seen how far the policy review takes the BoC from its current mandate but there is clearly a strong current of thought running among central bankers in North America at least that allowing inflation to run a little ‘hot’ may be an approach worth looking at more closely,” Shaun Osborne, chief FX strategist at Scotia Bank, said in a note.

Canadian government bond prices were lower across the maturity curve. The two-year CA2YT=RR yield was at 0.304%, up from 0.294% late on Wednesday, while the benchmark Canadian 10-year CA10YT=RR yield rose to 0.662% from 0.61%.

Reporting by Saqib Iqbal Ahmed; Editing by Dan Grebler and Bernadette Baum

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