Canadian dollar touches 14-month high as U.S. dollar slides on Fed, Trump

TORONTO (Reuters) - The Canadian dollar strengthened on Tuesday against the greenback, which sank to its weakest level in 10 months against a basket of rivals and helped steer currency market direction, as uncertainty around hawkish central banks and U.S. President Donald Trump’s agenda weighed.

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

At 4 p.m. ET (2000 GMT), the Canadian dollar CAD=D4 was trading at C$1.2622 to the greenback, or 79.23 U.S. cents, up 0.6 percent.

Recent gains for the loonie came after the Bank of Canada raised interest rates last week for the first time since 2010 and signaled it would hike again over the coming months. The currency has gained roughly 7 percent since the central bank turned hawkish in June.

The currency traded between C$1.2581, its strongest level since early May 2016, and C$1.2702 during the session.

“I think that (C$1.26) threshold may be acting as an opportunity to close out or at least take some profit on some short USD/CAD positions,” said Mazen Issa, senior FX strategist at TD Securities in New York, adding that the Canadian dollar could also be benefiting from a stronger Australian dollar, another commodities currency.

Australia’s central bank economic outlook turned more upbeat, according to minutes from its July meeting, which helped push the Australian dollar to more than two-year highs.

While other global central banks, including the Bank of England and the European Central Bank, are also signaling a more hawkish monetary policy tone, disappointing economic data has spurred doubt over whether the U.S. Federal Reserve will be able to raise interest rates again this year.

Meanwhile, Republican efforts to pass a healthcare overhaul bill in the U.S. Senate collapsed late on Monday, clouding expectations over whether Trump will make headway with his pro-growth agenda. An effort on Tuesday to repeal Obamacare without replacing it also failed.

The U.S. dollar index has fallen 7.4 percent since the start of the year, partly on the doubts over U.S. President Donald Trump’s fiscal stimulus agenda.

Canadian government bond prices were higher across the maturity curve, with the two-year CA2YT=RR price up 1.5 Canadian cents to yield 1.191 percent and the benchmark 10-year CA10YT=RR rising 30 Canadian cents to yield 1.86 percent.

Reporting by Solarina Ho; Editing by Jonathan Oatis