The Canadian dollar strengthened against the U.S. dollar on Tuesday as a surge in oil prices offset pressure from an escalating U.S.-Canada trade dispute and August's jobs report. The same oil rally pushed Canadian bond yields higher on inflation concerns, with the 10-year yield climbing to 3.806%.
The Canadian dollar strengthened against its U.S. counterpart on Tuesday, supported by a sharp rise in oil prices as escalating Middle East tensions raised concerns about disruptions to global energy supplies. The loonie was trading 0.2% higher at C$1.3788 per U.S. dollar, or 72.53 U.S. cents, after moving between 1.3776 and 1.3819. USD/CAD was separately around 1.3802 at 9:37 a.m. ET, down about 0.09% on the day.
Oil rally lifts the loonie
Crude prices surged to multi-month highs after attacks on Saudi energy facilities and growing concerns over tanker traffic through the Strait of Hormuz, supporting a currency tied to one of Canada's major exports. U.S. crude futures were last trading around $92.73 a barrel.
Trade dispute and jobs data cut against the currency
Canada escalated its trade dispute with the United States on Tuesday, putting retaliatory tariffs on C$20 billion of U.S. goods into effect after bilateral negotiations stalled. The measures add another source of uncertainty for the Canadian economy, given the country's heavy reliance on the U.S. market.
The oil rally is also helping offset pressure from last week's employment data, which showed Canada lost 41,700 jobs in August while U.S. payrolls rose 162,000. That divergence had initially pushed USD/CAD higher as investors reassessed the relative outlook for the Federal Reserve and the Bank of Canada.
Bond yields climb as oil stokes inflation fears
Canadian government bond yields rose Tuesday too, with the benchmark 10-year yield climbing to 3.806%, up 2.7 basis points around 11:15 a.m. ET, from a level that had closed at 3.77% on Sept. 4. The move accelerated through the morning after the yield was reported at 3.781%, up 0.2 basis points, earlier Tuesday.
The pressure on yields came as Brent crude jumped to $99.46 a barrel, its highest since July 24, after attacks by Iran-backed Houthi militants on Saudi energy facilities intensified concerns over supply disruptions; U.S. crude also climbed to its highest level since June. Higher energy prices have complicated the inflation outlook and reduced expectations that central banks can ease monetary policy quickly.
Investors are now watching U.S. inflation data later this week for clues on the Federal Reserve's September decision. A stronger-than-expected reading could bolster the dollar and limit the loonie's gains, while softer data could reinforce expectations for easier U.S. monetary policy.
Sources: Investing.com, Investing.com
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