Canadian dollar recovers as financial review produces no 'bombshells'

TORONTO (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Thursday, rebounding from an earlier one-week low as Wall Street fluctuated and the Bank of Canada said that measures taken to ease financial market strains were working.

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

In an annual review of Canada’s financial systems, the central bank said that “access to liquidity has greatly improved in key financial markets” even as it expressed concern over vulnerabilities in the energy sector.

“I don’t think there were any bombshells in there that made us think that things were worse than we thought,” said Amo Sahota, director at Klarity FX in San Francisco.

The central bank has slashed interest rates to near zero and introduced a range of measures to support financial market functioning during the coronavirus crisis, including its first ever large-scale bond-buying program.

The Canadian dollar CAD=D4 was trading 0.2% higher at 1.4066 to the greenback, or 71.09 U.S. cents. The currency touched its weakest intraday level since May 7 at 1.4140.

The recovery for the loonie came as U.S. stock markets clawed back their earlier declines, while the price of oil CLc1, one of Canada's major exports, rallied more than 8% to $27.39 a barrel.

“I’d still be worried about the coming sessions and worried about the loonie getting a little bit more weakness,” Sahota said. “You just have to look at the manufacturing sales data from early in the session.”

Canadian manufacturing sales in March slumped by 9.2%, the biggest drop in over 11 years, as the coronavirus pandemic forced the shutdown of many businesses, Statistics Canada said. Analysts had forecast a 5.7% decrease.

Ontario, Canada’s most populous province, said it will permit some retail stores as well as vehicle dealerships and construction sites to reopen on May 19, while Canadian Prime Minister Justin Trudeau unveiled new measures to support hard hit sectors and the partial reopening of some national parks.

Canadian government bond yields eased across the curve, with the 10-year yield down 1.4 basis points at 0.532%.

Reporting by Fergal Smith; Editing by Bernadette Baum and Alistair Bell