Canadian dollar nears three-week high as risk appetite rebounds

TORONTO (Reuters) - The Canadian dollar strengthened to a nearly three-week high against its U.S. counterpart on Tuesday as stock and oil prices climbed, while domestic manufacturing data supported the view the Bank of Canada would raise interest rates in October.

FILE PHOTO: U.S. and Canada Dollar notes in an illustration photograph taken on June 22, 2017. REUTERS/Thomas White/Illustration/File Photo

At 3:31 p.m. (1931 GMT), the Canadian dollar CAD=D4 was trading 0.4 percent higher at 1.2985 to the greenback, or 77.01 U.S. cents. The currency touched its strongest level since Aug. 30 at 1.2972.

Gains for the loonie came as investors on Wall Street shrugged off escalating trade rhetoric between the United States and China.

“We are seeing a rebound in risk appetite and the Canadian dollar is getting dragged along with that,” said Scott Smith, managing partner at Viewpoint Investment Partners.

Canada runs a current account deficit and exports many commodities, including oil, so its economy could be hurt if the global flow of trade or capital slows.

Oil was boosted by signs that OPEC would not be prepared to raise output to address shrinking supplies from Iran, and as Saudi Arabia signaled an informal target near current levels.

U.S. crude oil futures CLc1 settled 1.4 percent higher at $69.85 a barrel.

Canadian factory sales grew by 0.9 percent in July from June on higher sales in the transportation equipment industry, Statistics Canada said. Analysts surveyed by Reuters had forecast an increase of 0.6 percent.

“Canadian factories continued to hum in July,” Avery Shenfeld, chief economist at CIBC Capital Markets, said in an email. “The data give some upside to our Q3 GDP forecast, and underscore that the Bank of Canada is positioned to hike in October as long as NAFTA talks don’t blow up.”

Concerned business and political leaders are increasing the pressure on Canadian Prime Minister Justin Trudeau to agree on a deal to renew the North American Free Trade Agreement and drop his insistence that no deal is better than a bad deal.

The Bank of Canada has raised interest rates four times since July 2017. Money markets see a nearly 80 percent chance of another hike in October. BOCWATCH

Canadian government bond prices were lower across a steeper yield curve, with the 10-year CA10YT=RR falling 35 Canadian cents to yield 2.383 percent, its highest since May 25.

Canada’s inflation report for August and July retail sales data are due on Friday.

Reporting by Fergal Smith; Editing by Susan Thomas and Peter Cooney