Canadian dollar gains as oil rallies on Chinese stimulus hopes

A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto, January 23, 2015. REUTERS/Mark Blinch (CANADA - Tags: BUSINESS)

TORONTO (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Wednesday as hopes that China would stimulate its economy helped boost the price of oil, one of Canada’s major exports, and domestic data showed inflation climbed in January.

At 3:16 p.m. (2016 GMT), the Canadian dollar CAD=D4 was trading 0.2% higher at 1.3225 to the greenback, or 75.61 U.S. cents. The currency traded in a range of 1.3216 to 1.3265.

Gains for the Canadian dollar “can be broadly linked to the rally in oil markets,” said Simon Harvey, FX market analyst for Monex Europe and Monex Canada. “Today’s WTI price action highlights that markets have become less concerned with the deteriorating demand conditions due to the coronavirus and are instead finding relief in potential supply constraints.”

U.S. crude oil futures CLc1 settled 2.4% higher at $53.29 a barrel, while stocks globally .WORLD gained ground as speculation that China would take more measures to prop up its economy eased worries about the impact of the coronavirus outbreak.

Canada’s annual inflation rate rose to 2.4% in January on higher gasoline prices, Statistics Canada said. Some analysts suggested the data may pose a challenge for the Bank of Canada should it wish to ease rates, although the average of three key measures of underlying inflation dipped to 2%, the central bank’s target.

“While the upward surprise in headline CPI helped the loonie to rally initially, the details of the inflation report looked less promising,” Harvey said.

Chances of an interest rate cut in April fell to about 40% from nearly 50% before the data, the overnight index swaps market indicated. BOCWATCH

Demonstrators opposed to a Canadian energy project started blocking a western rail line, adding to pressure on Prime Minister Justin Trudeau to resolve a two-week protest that is harming the economy.

Canadian bond yields rose across a steeper yield curve, with the 10-year yield CA10YT=RR up 2.3 basis points at 1.352%.

Reporting by Fergal Smith; Editing by David Gregorio and Bernadette Baum