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Canadian dollar notches biggest gain in three weeks as oil surges

TORONTO (Reuters) - The Canadian dollar posted its biggest increase in three weeks against its U.S. counterpart on Wednesday as a jump in oil prices and improving financial conditions boosted the outlook for Canada’s commodity-linked economy.

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

At 3:27 p.m. (1927 GMT), the Canadian dollar CAD=D4 was trading 0.8% higher at 1.3887 to the greenback, or 72.01 U.S. cents, its largest gain since April 7. The currency touched a two-week high intraday at 1.3886.

The Canadian dollar is benefiting from “a surge in West Texas Intermediate (oil) prices,” said Karl Schamotta, chief market strategist at Cambridge Global Payments. “Also, behind the scenes we are seeing continued signs of easing in financial conditions.”

Financial conditions are the state of financial variables, such as corporate bond spreads and the performance of equity markets, that help determine the strength of the economy.

Canada runs a current account deficit and is a major exporter of commodities, including oil, so improvement in the global flow of trade or capital could be particularly helpful for its economy.

Wall Street stock indexes surged as hopes rose for an effective COVID-19 treatment and the Federal Reserve left key interest rates near zero, vowing to use a “full range” of its tools to aid the economy.

U.S. crude oil futures CLc1 settled 22% higher at $15.06 a barrel after U.S. crude stockpiles grew less than expected and gasoline posted a surprise draw, feeding optimism that fuel consumption will recover as some European countries and U.S. states ease coronavirus lockdowns.

Canada is being more cautious than some other countries in opening up its economy. About two-thirds of Canadian businesses say they cannot survive more than six months of physical-distancing restrictions designed to slow the spread of the novel coronavirus, a crowdsourcing survey said.

Canada’s GDP report for February is due on Thursday but could be too dated to guide expectations for further easing measures from the Bank of Canada.

Canadian government bond yields were mixed across a flatter curve, with the 10-year yield CA10YT=RR falling 1.2 basis points to 0.563%.

Reporting by Fergal Smith; Editing by Jonathan Oatis and Peter Cooney

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