TORONTO (Reuters) - The Canadian dollar edged lower against its U.S. counterpart on Thursday but held on to most of its gains from the day before as oil prices rallied and data showed that Canada ran a smaller-than-expected current account deficit in the third quarter.
The price of oil, one of Canada’s major exports, rose after industry sources said Russia had accepted the need to cut production, together with the Organization of the Petroleum Exporting Countries ahead of its meeting next week.
U.S. crude oil futures CLc1 settled 2.3 percent higher at $51.45 a barrel.
“It does appear as if for crude, specifically, that we have found a bit of a floor,” said Shaun Osborne, chief currency strategist at Scotiabank. “I think that should be positive for the CAD in the near to medium term.”
Canada’s current account deficit narrowed to C$10.34 billion in the third quarter from a revised C$16.68 billion deficit in the second quarter, Statistics Canada said. Analysts had forecast a deficit of C$11.50 billion.
The improvement reflected better prices for Canada’s exports that have since “melted away,” said Avery Shenfeld, chief economist at CIBC Capital Markets.
At 4:20 p.m. (2120 GMT), the Canadian dollar CAD=D4 was trading 0.1 percent lower at 1.3285 to the greenback, or 75.27 U.S. cents. The currency traded in a range of 1.3254 to 1.3314.
On Wednesday, the loonie hit a five-month low intraday at 1.3360 before rallying on comments from Federal Reserve Chairman Jerome Powell that were seen as dovish by some investors.
“I would expect (Canadian) interest rate differentials to narrow in the next few months against the U.S. dollar, (which is) a bit more supportive of the CAD,” Scotiabank’s Osborne said.
The Bank of Canada hiked interest rates last month for the fifth time since July 2017 after an agreement among Canada, the United States and Mexico on a new North American trade pact reduced uncertainty for Canada’s economy.
But a day before the countries are due to sign the agreement, negotiators are still thrashing out what exactly they will be putting their names to, officials said.
Canadian government bond prices were higher across the yield curve, with the two-year CA2YT=RR up 4 Canadian cents to yield 2.188 percent and the 10-year CA10YT=RR rising 20 Canadian cents to yield 2.304 percent.
The 10-year yield touched its lowest intraday since Sept. 10 at 2.289 percent.
Canada’s gross domestic product data for the third quarter is due on Friday.
Reporting by Fergal Smith; Editing by Susan Thomas and Peter Cooney