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The Canadian dollar CADUSD strengthened against its U.S. counterpart on Thursday as falling measures of currency market volatility showed that investors were growing more confident holding riskier, commodity-linked currencies rather than the greenback.

The loonie was trading 0.3% higher at 1.2640 to the greenback, or 79.11 U.S. cents, after touching its strongest intraday level since March 3 at 1.2631.

Canada, like Australia and New Zealand, is a major producer of commodities. The Australian and New Zealand dollars also gained ground.

“Risk appetite is slowly returning to currency markets, with volatility expectations falling and flows into high-beta currencies rebounding,” said Karl Schamotta, chief market strategist at Corpay.

Canadian dollar 3-month implied volatility has declined to 7.175% from 8.15% earlier this month, FX options market data showed.

“Traders know that the (U.S.) dollar typically falls in the six months after a Fed tightening cycle begins, and are positioning for outperformance in its major counterparts,” Schamotta said.

The U.S. dollar fell to a one-week low one day after the Federal Reserve hiked interest rates for the first time since 2018, with investors watching developments in Russia-Ukraine talks.

Renewed focus on supply shortages in coming weeks due to sanctions on Russia helped the price of oil, one of Canada’s major exports, rebound from several days of losses. U.S. crude oil futures settled 8.4% higher at $102.98 a barrel.

A commodities rally sparked by Russia’s invasion of Ukraine will push Canadian inflation higher for longer, with the headline rate now seen peaking at or above 6%, forcing the central bank to raise interest rates more aggressively, economists told Reuters.

The Canadian 10-year yield was trading nearly unchanged at 2.190%, after touching on Wednesday its highest intraday level since December 2018 at 2.273%.

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Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 01/03/24 4:59pm EST.

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Canadian Dollar/U.S. Dollar

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