Canadian dollar gains as oil jumps and hit to trade is less than feared

The Canadian dollar strengthened against its U.S. counterpart on Tuesday as the easing of coronavirus lockdowns in some countries boosted oil prices and domestic data showed that the trade deficit widened less than expected in March.

Canada’s trade deficit widened to $1.4 billion in March from $0.9 billion in February as both exports and imports declined, Statistics Canada said. Analysts has expected a deficit of $2 billion.

“The extent of the declines in both exports and imports was not as pronounced as expected, leaving a smaller widening in the deficit than feared,” said Ryan Brecht, a senior economist at Action Economics. “However, exports and imports should see sharp declines in April as the economy saw a plunge in activity due to the stay-at-home measures implemented to slow the pandemic.”

One of Canada’s major exports is oil. U.S. crude oil futures on Tuesday climbed 13.5 per cent to US$23.15 a barrel on hopes for a recovery in vehicle traffic and fuel demand as some European and Asian countries along with several U.S. states began to ease restrictions that were put in place to contain the coronavirus pandemic.

The province of Quebec, worst hit in Canada by the coronavirus, began gradually reopening its economy on Monday but pushed back plans for a restart in the city of Montreal, citing health concerns.

At 8:51 a.m., the Canadian dollar was trading 0.4 per cent higher at 1.4033 to the greenback, or 71.26 U.S. cents. The currency, which has been pressured in recent days by fears that last year’s U.S.-China trade dispute will be reignited, traded in a range of 1.4018 to 1.4094.

Ottawa is rolling out about $300 billion of economic support measures, while the Bank of Canada has slashed interest rates to 0.25 per cent, matching a record low, and begun a large-scale asset purchase program for the first time.

On Monday, Bank of Canada Senior Deputy Governor Carolyn Wilkins said that the bank stood ready to adjust its asset purchases to support a lasting recovery.

Canadian government bond yields edged higher across the curve on Tuesday, with the 10-year up less than one basis point at 0.579 per cent.

Canada’s jobs report for April is due on Friday.

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