TORONTO (Reuters) - The Canadian dollar strengthened on Monday to its highest level against its U.S. counterpart in more than two weeks as the price of oil, one of Canada’s major exports, jumped after major producers took a step toward extending a supply-cut deal.
U.S. crude CLc1 prices settled up $1.01 at $48.85 a barrel after top exporter Saudi Arabia and Russia said supply cuts led by the Organization of the Petroleum Exporting needed to last into 2018, longer than originally agreed.
The Canadian dollar’s historically close link to oil has become stronger in recent weeks. The three-month rolling correlation between the loonie and oil reached its highest since September at 0.75, indicating that the currency and the commodity move mostly in the same direction.
At 4 p.m. EDT (2000 GMT), the Canadian dollar CAD=D4 was trading up 0.5 percent at C$1.3645 per greenback, or 73.29 U.S. cents, according to Reuters data. It touched its strongest level since April 27 at C$1.3601.
The loonie moved further away from a recent 14-month low at C$1.3793. It had been pressured recently by depressed oil prices, a more uncertain trade outlook with the United States and investor worries about how the troubles of alternative lender Home Capital Group could affect the country’s real estate market.
But analysts expect the Canadian dollar will weather a “perfect storm” to regain some ground over the coming months, a Reuters poll showed earlier this month, as a pickup in the domestic economy could prod the Bank of Canada to raise interest rates by next year.
“It looks like Canada is set to have strong enough growth in 2017 that the Bank of Canada could hike if not at the beginning of next year, then even before the end of this year,” said William Adams, senior international economist at PNC Financial Services Group.
Bank of Canada Governor Stephen Poloz told the Globe and Mail newspaper over the weekend that the problems at Home Capital Group were contained, but that the sharp rise in Canadian home prices and its possible impact on the financial system is a primary concern for the central bank.
Resales of Canadian homes fell 1.7 percent in April from record highs in March as new listings spiked, the Canadian Real Estate Association said in a report that suggested a long-awaited slowdown in housing has begun.
Canadian government bond prices were lower across the yield curve, with the 10-year CA10YT=RR falling 16 Canadian cents to yield 1.592 percent.
Reporting by Fergal Smith, editing by G Crosse