TORONTO (Reuters) - The Canadian dollar strengthened to a three-month high against its U.S. counterpart on Wednesday as investors bet that a lengthy period of loose monetary policy from the Federal Reserve could be supportive of commodity-linked currencies.
Fed policymakers projected a 6.5% decline in gross domestic product this year and a 9.3% unemployment rate at year’s end, while they see the key overnight interest rate remaining near zero this year and next.
“That suggests that monetary policy conditions are going to remain easy on a global basis and that is positive for high beta currencies like the Canadian dollar,” said Karl Schamotta, chief market strategist at Cambridge Global Payments.
Beta is a measure of a financial asset’s volatility compared to the market. Canada is a major exporter of commodities, including oil, so the loonie tends to be sensitive to the outlook for the global economy.
U.S. crude oil futures CLc1 settled 1.7% higher at $39.60 a barrel even as U.S. data showed crude inventories rose to a record high, reviving worries of a persistent glut due to weak demand.
The Canadian dollar CAD= was up 0.2% at 1.3391 to the greenback, or 74.68 U.S. cents. The currency touched its strongest intraday level since March 4 at 1.3315 but gave up much of its gains as stocks on Wall Street lost ground in volatile trade.
Canada and the United States are set to extend a ban on non-essential travel to late July as both countries seek to control the spread of the coronavirus, according to three sources familiar with the matter. The ban, currently due to expire on June 21, does not affect trade.
Canadian government bond yields moved lower across a flatter curve in sympathy with U.S. Treasuries, with the 10-year CA10YT=RR down 7.1 basis points at 0.563%.
Reporting by Fergal Smith; editing by Jonathan Oatis and Marguerita Choy
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