Canadian dollar hits six-week high as investors eye fundamental support

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 strengthened to its highest level in nearly six weeks against its U.S. counterpart on Monday, as investors focused on underlying factors supportive of the currency and awaited a Federal Reserve policy decision later this week.

The loonie was trading 0.6% higher at 1.2400 to the greenback, or 80.65 U.S. cents, having touched its strongest intraday level since March 18 at 1.2383.

"What we are getting at this point is a realignment in terms of the Canadian dollar," said Eric Theoret, global macro strategist at Manulife Investment Management. "The current levels that we are at right now are still much weaker than where you would expect them to be based on fundamentals."

Higher commodity prices and a more hawkish Bank of Canada are among the factors supportive of the loonie, Theoret said.

The central bank last week signaled it could start hiking interest rates next year and cut the pace of bond purchases.

In contrast, most analysts expect Fed Chair Jerome Powell to say on Wednesday that talk of withdrawing monetary support for the U.S. economy is premature, which could put downward pressure on Treasury yields and the U.S. dollar.

Speculators have raised their bullish bets on the Canadian dollar to the highest in seven weeks, data from the U.S. Commodity Futures Trading Commission showed on Friday.

The price of oil, one of Canada's major exports, settled 0.4% lower at $61.91 a barrel, pressured by fears that surging COVID-19 cases in India will dent fuel demand in the world's third-biggest oil importer.

Canadian government bond yields rose across a steeper curve. The 10-year was up 1.5 basis points at 1.532%.

Canadian retail sales data for February is due on Wednesday, while GDP data for the same month is due on Friday.

(Reporting by Fergal Smith; Editing by Ken Ferris and Paul Simao)