The Canadian dollar strengthened against its U.S. counterpart on Tuesday as oil prices rose to 3-1/2-year highs and the greenback broadly lost ground.
The U.S. dollar fell against a basket of major currencies after the Chinese central bank moved to calm nervous foreign exchange markets following a fall in the renminbi below a key psychological level.
Canada runs a current account deficit so its economy could be hurt if the flow of capital slows.
The price of oil, one of Canada’s major exports, rose after Libya declared a force majeure on some of its crude exports. U.S. crude prices were up 1.5 per cent to $75.07 a barrel.
The loss of Canadian supplies has helped lift the price of oil but could restrain domestic economic growth in the third quarter.
Canada is also contending with slow-moving talks to revamp the North American Free Trade Agreement and a trade dispute with the United States.
The White House said on Monday that Canada’s decision to enact tariffs on C$16.6 billion worth of American goods in retaliation for U.S. tariffs on imports of Canadian steel and aluminum would not help its economy.
At 9:06 a.m. EDT, the Canadian dollar was trading 0.3 per cent higher at $1.3149 to the greenback, or 76.05 U.S. cents. The currency traded in a range of $1.3133 to $1.3207.
On Friday, the loonie notched a two-week high at $1.3131 after a surprise expansion of the domestic economy in April and business optimism raised expectations for a Bank of Canada interest rate hike next week.
Still, speculators have raised bearish bets on the Canadian dollar, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed on Friday. As of June 26, net short positions jumped to 32,799 contracts from 14,014 a week earlier.
Canadian government bond prices were higher across much of the yield curve, with the 10-year rising 12 cents to yield 2.153 per cent. The 10-year yield touched its highest intraday level since June 18 at 2.204 per cent.
Canada’s employment report for June and trade data for May are due out on Friday.