January 31, 2019 / 2:09 PM / 5 months ago

Canadian dollar rises to three-month high as oil rallies, yield spreads narrow

TORONTO (Reuters) - The Canadian dollar strengthened on Friday to its highest in nearly three months against the greenback as oil prices rose and as the gap narrowed between Canadian and U.S. bond yields despite U.S. data showing employers hired the most workers in 11 months.

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

At 4:31 p.m. (2131 GMT), the Canadian dollar was trading 0.3 percent higher at 1.3088 to the greenback, or 76.41 U.S. cents. The currency, which climbed 3.9 percent in January, touched its strongest level intraday since Nov. 7 at 1.3069.

For the week, the loonie rose 1 percent.

The “big drivers” for the Canadian dollar have been narrower yield spreads and higher oil prices, said Amo Sahota, a director at Klarity FX in San Francisco.

U.S. crude oil futures settled 2.7 percent higher on Friday, helped by upbeat U.S. jobs data and signs that U.S. sanctions on Venezuelan exports have helped tighten supply.

U.S. job growth surged in January, pointing to strength in the economy. Still, other data hinting at a darkening outlook have the Federal Reserve cautious about further interest rate hikes this year.

The spread between Canada’s 10-year yield and its U.S. equivalent narrowed on Friday by 2.6 basis points to a spread of 73 basis points in favor of the U.S. bond, its narrowest since Jan. 7.

The narrower spread came as hopes rose of progress on trade talks between the United States and China.

The U.S.-China trade talks this week had a “good vibe” with much work remaining, White House economic adviser Larry Kudlow said on Friday as China followed through on a pledge to increase soybean purchases with a 1 million tonne order.

Canada is running a current account deficit as well as being a major commodities producer, so its economy could benefit from a pickup in the global flow of trade.

Data from the U.S. Commodity Futures Trading Commission, which had been delayed during a partial shutdown of the U.S. government, and Reuters calculations showed that speculators raised their bearish bets on the Canadian dollar in December to the highest in about five months.

As of Dec. 24, net short positions had jumped to 44,692 contracts from 7,457 a week earlier.

Canadian government bond prices were lower across the yield curve, with the two-year down 11.5 Canadian cents to yield 1.833 percent and the 10-year falling 69 Canadian cents to yield 1.960 percent.

Reporting by Fergal Smith; Editing by Phil Berlowitz and David Gregorio

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