Canadian dollar clings to monthly gain as sell-off on dovish BoC runs its course

TORONTO (Reuters) - The Canadian dollar was little changed against its broadly weaker U.S. counterpart on Thursday as stocks and oil prices fell, with the loonie steadying after it was pressured the day before by a more dovish tone from the Bank of Canada.

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 4:12 p.m. (2012 GMT), the Canadian dollar CAD=D4 was trading nearly unchanged at 1.3168 to the greenback, or 75.94 U.S. cents. The currency, which hit a near two-week low on Wednesday at 1.3210, traded in a narrow range of 1.3136 to 1.3178.

For the month, the loonie was up 0.5%.

On Wednesday, Canada’s central bank cut its domestic and global growth forecasts and said the country’s economy would be “increasingly tested” by trade conflicts, as it held its benchmark interest rate steady at 1.75%.

Still, the Federal Reserve, which eased on Wednesday for the third time since July, has lowered the range for its policy rate to below the Bank of Canada’s equivalent for the first time since December 2016.

“The reaction that we’ve seen yesterday following the BoC’s dovishness, I think that’s behind us,” said Simon Côté, managing director, risk management solutions, National Bank Financial. “We are just waiting for tomorrow and the non-farm payroll number, that’s the next potential market-mover.”

The U.S. Labor Department’s October jobs data on Friday will be closely watched after the Fed signaled there would be no further cuts unless the economy takes a negative turn.

The U.S. dollar .DXY fell on Thursday to a 10-day low against a basket of currencies, while Wall Street was pressured by conflicting signals surrounding a possible trade deal between the United States and China.

Canada is a major exporter of commodities, including oil, so its economy could benefit from an improved outlook for global trade. U.S. crude oil futures CLc1 settled 1.6% lower at $54.18 a barrel.

“If the risk-on environment comes back and stocks resume their uptrend, we are going to go back and test 1.30 again on USD-CAD,” Côté said.

The steady profile on Thursday for the loonie came as data from Statistics Canada showed that Canada’s economy gained 0.1% in August, a touch less than analysts expected.

Canadian government bond prices were higher across the yield curve in sympathy with U.S. Treasuries. The two-year CA2YT=RR rose 8.5 Canadian cents to yield 1.516% and the benchmark 10-year CA10YT=RR was up 36 Canadian cents to yield 1.412%.

The 10-year yield touched its lowest intraday since Oct. 11 at 1.399%.

Reporting by Fergal Smith; Editing by Alistair Bell and Peter Cooney