CANADA FX DEBT-Canadian dollar extends daily winning streak as interest rate spreads narrow

By Reuters News

By Fergal Smith

TORONTO, Oct 22 (Reuters) - The Canadian dollar strengthened to a one-month high against its US counterpart on Thursday as oil prices rose and the gap narrowed between US and Canadian interest rates.

The loonie was trading 0.3% higher at 1.4007 per US dollar, or 71.39 US cents, its strongest intraday level since September 21 and putting the currency on course for the sixth straight day of gains. The daily winning streak would be the longest since April.

  • "Most importantly for the currency, the repricing of the Bank of Canada outlook has narrowed the two-year US-Canada yield spread," said Kevin Ford, an FX & macro strategist at Convera. "That has reduced the US dollar’s rate advantage at the same time that elevated oil prices have supported Canada’s terms of trade."

  • The gap between Canada's 2-year yield and the equivalent US rate narrowed by 11 basis points to about 141 basis points in favor of the US note.

  • Concerns about the sustainability of the AI outlook resurfaced, boosting the safe-haven appeal of US Treasuries.

  • The price of oil, one of Canada's major exports, rose after Houthi attacks in Saudi Arabia stoked concerns of further disruption to energy supplies from the key exporting region. US crude oil futures were trading 2.2% higher at $99.26 a barrel.

  • "The USD-CAD is looking to test the 1.40 level on the downside, but extending the move below that threshold will likely require further support from Canadian data and the Bank of Canada," Ford said.

  • Investors see a roughly 75% chance the Bank of Canada will raise its benchmark interest rate by 25 basis points to 2.50% next Wednesday. Bets on a hike have increased in recent days after hawkish comments from BoC Governor Tiff Macklem and evidence of rising expectations for long-term inflation.

  • Canadian retail sales data for August is due on Friday — analysts expect sales to rebound 1.3% after they declined 0.7% in July.

  • Canadian government bonds tracked the moves in US Treasuries. The 10-year yield was down 7.8 basis points at 3.787%.

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