Canadian dollar notches one-month high as investors bet on trade deal

A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015. REUTERS/Mark Blinch

TORONTO (Reuters) - 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 CLc1 settled 2.6 percent higher at $49.78 a barrel.

Canada exports many commodities, including oil, so its economy could benefit from an improved outlook for global trade.

“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 percent, 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 C$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 CAD=D4 was trading 0.2 percent 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.

Canadian government bond prices were lower across the yield curve, with the two-year CA2YT=RR down 2.5 Canadian cents to yield 1.9 percent and the 10-year CA10YT=RR falling 9 Canadian cents to yield 1.967 percent.

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 favor of the U.S. bond.

Reporting by Fergal Smith; Editing by Tom Brown