The Canadian dollar strengthened to its highest level in more than three years against its U.S. counterpart on Wednesday, supported by improved investor sentiment and the Bank of Canada’s recent shift to more hawkish guidance.
The Dow Jones Industrial Average hit a record high as the market recovered from a steep tech sell-off, after investors were encouraged by U.S. Treasury Secretary Janet Yellen’s new comments on interest rates and a positive private jobs report.
“Risk-on conditions” and the recent move higher in commodity prices bolstered the Canadian dollar,” Ronald Simpson, managing director, global currency analysis at Action Economics, said in a note. “In addition, the BoC’s tapering of its QE program appears to have shifted USD-CAD’s trading range down a notch.”
Last month, the Bank of Canada cut the pace of its bond purchases and signaled it could hike interest rates in late 2022.
Further clues to the central bank’s policy outlook could come from Canada’s April employment report, due for release on Friday.
The Canadian dollar was trading 0.2% higher at 1.2280 to the greenback, or 81.43 U.S. cents, having touched its strongest intraday level since February 2018 at 1.2252.
U.S. crude oil futures settled 0.1% lower at $65.63 a barrel as traders used weekly inventory figures as an excuse to pull back from the recent rally. Oil is one of Canada’s major exports.
Home sales in Toronto, Canada’s most populous city, fell nearly 13% in April from March. That bucked the regular spring trend, as demand began to ease after months of blistering growth.
Canadian government bond yields were mixed across the curve, with the 10-year little changed at 1.521%.
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