Canadian dollar gains as oil rallies, investors embrace risk

FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015./File Photo

TORONTO (Reuters) - The Canadian dollar strengthened against the greenback on Tuesday, adding to this year’s gains as oil prices climbed and as risk appetite was boosted by the potential de-escalation of the trade dispute between the United States and China.

Wall Street rallied as investors were heartened by a tentative congressional spending deal to avoid another U.S. government shutdown and after U.S. President Donald Trump said he could let slide the March 1 deadline for a trade agreement with China.

“It seems to be a risk-on move,” said Bipan Rai, North America head of FX Strategy at CIBC Capital Markets. “We are seeing a lot of growth currencies benefit and the loonie is being taken along for the ride.”

Canada is running a current account deficit and exports many commodities, including oil, so its economy could benefit from a pickup in the flow of trade or capital.

U.S. crude oil futures settled 1.3 percent higher, boosted by steep OPEC production cuts after its de-facto leader, Saudi Arabia, said it planned to drop March crude output by more than a half a million barrels per day below its initial pledge.

At 3:31 p.m. (2031 GMT), the Canadian dollar was trading 0.5 percent higher at 1.3236 to the greenback, or 75.55 U.S. cents. The currency traded in a range of 1.3233 to 1.3312.

Gains for the loonie come after Canadian data on Friday showed bumper jobs numbers in January that exceeded market expectations and highlighted the strength of the economy.

The loonie has advanced 3.1 percent since the start of 2019, the best performance among G10 currencies.

Canadian government bond prices were lower across a steeper yield curve in sympathy with U.S. Treasuries. The two-year fell 2 Canadian cents to yield 1.800 percent and the 10-year declined 14.5 Canadian cents to yield 1.920 percent.

Reporting by Fergal Smith; Editing by Bernadette Baum and Peter Cooney