Canadian dollar rises as investors eye further cuts to BoC stimulus

·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, as oil prices rose and comments from a senior Bank of Canada policymaker supported expectations for further reduction of stimulus from the central bank as soon as next month.

The loonie was trading 0.2% higher at 1.2090 to the greenback, or 82.71 U.S. cents, after touching its weakest level since last Friday at 1.2127.

The currency has been the top performing Group of 10 currency this year, gaining 5.3% against the greenback. It has been bolstered by higher commodity prices and the Bank of Canada's more hawkish stance, including a reduction in the pace of bond purchases.

BoC Deputy Governor Timothy Lane said that recent data show signs of increasing resilience in the economy that bodes well for the recovery.

"If all goes well, the next few weeks could set us up for further tapering as soon as July," said Sri Thanabalasingam, a senior economist at TD Economics.

With COVID-19 vaccinations rolling out and new cases tumbling, Canadian provinces are loosening economic restrictions.

The price of oil, one of Canada's major exports, rose to its highest level since October 2018 after a drop in new U.S. unemployment claims supported expectations for strong demand. U.S. crude oil futures settled 0.5% higher at $70.29 a barrel.

The much-anticipated U.S. consumer price index report signaled that the current inflation wave will be transitory, weighing on the U.S. dollar and bond yields.

Canadian government yields eased across a flatter curve, tracking the move in U.S. Treasuries. The 10-year fell as much as 2.7 basis points to 1.384%, its lowest level since March 11.

(Reporting by Fergal Smith; Editing by Paul Simao and David Gregorio)