C$ gains as investors shake off doubts about additional Fed measures

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

TORONTO (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Thursday as investors stuck to a view that the U.S. Federal Reserve would add further stimulus and as Canada announced the extension of an emergency support measure.

Markets were rattled on Wednesday by minutes from last month’s Federal Reserve policy meeting that were less dovish than some investors expected. But the impact was short-lived, with U.S. Treasury yields falling and a rebound in the U.S. dollar losing momentum on Thursday.

“The U.S. dollar continues to suffer against everything right now because there’s this belief that the Fed is going to do something else,” said Erik Bregar, head of FX strategy at the Exchange Bank of Canada. “Whenever we see U.S. dollar selling, it tends to help the Canadian dollar.”

Canada is extending a COVID-19 income-support program by one month to the end of September, and it will offer unemployment benefits to some 400,000 people who would not normally qualify, a senior official said.

A staggered reopening from lockdowns, supported by fiscal stimulus, is likely paying off for Canada’s economy, with activity forecast to rebound in the current quarter twice as fast as in the United States.

The Canadian dollar CAD= was trading 0.3% higher at 1.3173 to the greenback, or 75.91 U.S. cents. The currency, which on Wednesday touched its strongest intraday level in nearly seven months at 1.3133, traded in a range of 1.3168 to 1.3244.

The price of oil, one of Canada's major exports, fell after Reuters reported OPEC+ needed to address daily oversupply of more than 2 million barrels, and the number of U.S. unemployment benefit claims rose unexpectedly. U.S. crude oil futures CLc1 settled 0.8% lower at $42.58 a barrel.

Canadian government bond yields were lower across a flatter curve. The 10-year CA10YT=RR was down 2.5 basis points at 0.557%.

Reporting by Fergal Smith; Editing by Marguerita Choy