Canadian dollar gains as trade deal optimism boosts stocks

TORONTO (Reuters) - The Canadian dollar strengthened against the greenback on Tuesday, paring its decline since October as optimism rose on U.S.-China trade talks and after a deal was reached to end a railway strike that threatened to slow Canada’s economic growth.

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

U.S. stocks rose to a record high after President Donald Trump said the United States and China were close to an agreement on the first phase of a deal.

“Equity markets are still pretty happy, so there is no reason to sell Canada further at this point,” said Michael Goshko, corporate risk manager at Western Union Business Solutions.

Canada runs a current account deficit and is a major exporter of commodities, including oil, so its economy could benefit from an improved outlook for the global flow of capital or trade. U.S. crude oil futures CLc1 rose 0.6% to $58.35 a barrel.

At 4:01 p.m. (2101 GMT), the Canadian dollar CAD=D4 was trading 0.2% higher at 1.3274 to the greenback, or 75.34 U.S. cents. The currency traded in a range of 1.3273 to 1.3316.

The loonie has been pressured since October by a more dovish stance from the Bank of Canada. Last Wednesday, it hit its weakest intraday level since Oct. 10 at 1.3328.

“We are seeing a little bit of position squaring” by investors after major trendline support for the loonie held around 1.3330, Goshko said.

Canada's longest railroad strike in a decade ended as Canadian National Railway Co CNR.TO, the country's biggest railroad, reached a tentative agreement with workers. But shippers warned it could take weeks before service bounces back to normal.

Economists estimated that a prolonged strike could have cost the Canadian economy billions of dollars. Data for Canada’s third-quarter gross domestic product is due on Friday.

Canadian government bond prices were higher across a flatter yield curve in sympathy with U.S. Treasuries. The two-year CA2YT=RR rose 3 Canadian cents to yield 1.567% and the 10-year CA10YT=RR was up 23 Canadian cents to yield 1.437%.

Reporting by Fergal Smith; Editing by Nick Zieminski and Peter Cooney