The Canadian dollar strengthened to a one-month high against the greenback on Tuesday as hopes of a trade deal between the United States and China boosted investor sentiment ahead of an interest rate decision from the Bank of Canada.
Stocks and the price of oil rallied on bets the world’s two largest economies would strike a deal to end a trade war. U.S. crude oil futures settled 2.6 per cent higher at $49.78 a barrel.
Canada exports many commodities, including oil, so its economy could benefit from an improved outlook for global trade.
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“CAD is looking a bit better overall at this point and it can perhaps improve a little bit more,” said Shaun Osborne, chief currency strategist at Scotiabank.
The Bank of Canada, which hiked interest rates three times in 2018 to leave its benchmark rate at 1.75 per cent, is expected to refrain from tightening further on Wednesday after it worried last month that a sharp drop in oil prices since October could hurt Canada’s economy.
Data on Tuesday from Statistics Canada showed that the country’s trade deficit more than doubled in November to $2.06 billion as exports declined for a fourth straight month, dragged down by weak prices for crude oil and lower demand for chemicals..
At 4:34 p.m. (2134 GMT), the Canadian dollar was trading 0.2 per cent higher at 1.3276 to the greenback, or 75.32 U.S. cents. The currency touched its strongest intraday level since Dec. 7 at 1.3268.
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Canadian government bond prices were lower across the yield curve, with the two-year down 2.5 Canadian cents to yield 1.9 per cent and the 10-year falling 9 Canadian cents to yield 1.967 per cent.
The gap between Canada’s 2-year yield and its U.S. equivalent widened by 5 basis points to a spread of 68.8 basis points in favour of the U.S. bond.