Canadian dollar gains as manufacturing strength cheers investors

Fergal Smith
·2 min read
FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar edged higher against its U.S. counterpart on Thursday, the start of a seasonally strong month for the currency, as oil rose and domestic data showed factory activity expanding at a record pace in March.

The IHS Markit Canada Manufacturing Purchasing Managers' index (PMI) rose to a seasonally adjusted 58.5 in March from 54.8 in February, posting the highest reading in the 10-year history of the survey.

A measure of U.S. manufacturing activity for March was also robust, soaring to its highest level in more than 37 years. Canada sends about 75% of its exports to the United States, including oil.

"The demand story for manufactured goods and raw materials continues to heat up," said Adam Button, chief currency analyst at ForexLive. "For an exporter like Canada, it bodes well for many months ahead."

Separate data from Statistics Canada showed that the value of building permits rose by 2.1% in February from a month earlier, beating expectations of a 1.4% decline.

Analysts have raised their Canadian dollar forecasts for the coming year, expecting the currency to benefit from faster growth in the domestic economy and a potential reduction of Bank of Canada bond purchases, a Reuters poll showed.

The Canadian dollar was trading 0.1% higher at 1.2547 to the greenback, or 79.70 U.S. cents. The currency has gained ground in eight of the last 10 Aprils.

"The seasonal tailwind in the Canadian dollar is undeniable in April and we may be seeing a reflection of that today," Button said.

U.S. crude oil futures settled 3.9% higher at $61.45 a barrel after news that OPEC+ reached a deal to gradually ease production cuts from May.

Canada's 10-year yield eased 4.7 basis points to 1.513%, with the bond market closing early ahead of the Good Friday holiday.

(Reporting by Fergal Smith; Editing by Kirsten Donovan; editing by Grant McCool)