November 28, 2018 / 9:28 PM / 18 days ago

Canadian dollar rebounds from 5-month low as investors rethink Fed outlook

TORONTO (Reuters) - The Canadian dollar rallied against its broadly weaker U.S. counterpart on Wednesday, rebounding from an earlier five-month low after comments from Federal Reserve Chairman Jerome Powell that were seen as dovish by some investors.

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

Powell appeared to signal the U.S. central bank was nearing an end to its interest-rate hikes, saying the Fed’s policy rate was now “just below” a level that neither brakes nor boosts a healthy economy.

“Today’s move (in the Canadian dollar) is a result of changing expectations around the Federal Reserve,” said Tim Alt, director, rates & currencies at Aviva Investors in Chicago.

Yields on shorter-dated U.S. government bonds fell and the U.S. dollar .DXY retreated against a basket of major currencies.

At 3:51 p.m. (2051 GMT), the Canadian dollar CAD=D4 was trading 0.3 percent higher at 1.3263 to the greenback, or 75.40 U.S. cents. The currency’s strongest level of the session was 1.3242, while it touched its weakest since June 27 at 1.3360.

Gains for the loonie came despite a 13-month low for the price of oil, one of Canada’s exports.

U.S. crude oil futures CLc1 settled 2.5 percent lower at $50.29 a barrel after U.S. crude inventories rose for the 10th straight week amid concerns about excess global supply.

Recent weakening in oil prices, including the price of Canadian heavy crude, have weighed on the outlook for Canada’s economy, reducing expectations for another Bank of Canada interest rate hike in January, Alt said.

The central bank has hiked five times since July 2017 to leave its benchmark interest rate at 1.75 percent. Chances of further tightening as soon as January have slipped to about 70 percent after having been fully priced into the market at the beginning of the month, data from the overnight index swaps market showed.

Alberta is in talks to buy rail cars to transport 120,000 barrels per day (bpd) of crude oil and expects a deal to conclude within weeks, Premier Rachel Notley said, as the energy-rich province takes actions to move oil stuck in the region because of a lack of pipeline capacity.

Canadian government bond prices were higher across much of a steeper yield curve in sympathy with U.S. Treasuries. The two-year CA2YT=RR rose 3.5 Canadian cents to yield 2.208 percent and the 10-year CA10YT=RR climbed 11 Canadian cents to yield 2.325 percent.

The 10-year yield hit its lowest intraday since Sept. 13 at 2.313 percent.

Reporting by Fergal Smith; Editing by Susan Thomas and Peter Cooney

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