Loonie rises to 14-month high, yearly gain tops G10 currencies

TORONTO (Reuters) - The Canadian dollar rose to a 14-month high against its U.S. counterpart on Tuesday as year-end funding pressures that might have boosted the greenback didn’t occur, pushing the loonie’s annual rally to more than 5%, the biggest of any G10 currency.

FILE PHOTO: U.S. and Canada Dollar notes are seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration

The Federal Reserve appeared to have averted a squeeze on bank funding over the crucial year-end period, as large banks took only a small portion of the $150 billion of overnight liquidity on offer and the cost of borrowing was muted.USONRP=

“For whatever reason CAD has run out ahead of the pack and I think that has to do with year-end liquidity pressures” that didn’t materialize, said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York.

The U.S. dollar .DXY weakened against most major currencies, with its biggest declines coming against sterling GBP= and the Canadian dollar.

At 2:31 p.m. (1931 GMT), the Canadian dollar CAD=D4 was trading 0.7% higher at 1.2978 to the greenback, or 77.05 U.S. cents. The currency notched its strongest intraday level since Oct. 17, 2018 at 1.2952.

The gain for the loonie coincided with U.S. President Donald Trump saying that the so-called Phase 1 of a trade deal with China would be signed on Jan. 15 at the White House, though considerable confusion remains about the details of the agreement.

Canada is a major exporter of commodities, including oil, so its economy could benefit from an improved outlook for global trade.

The loonie has advanced 5.1% this year but it has slumped nearly 19% since the start of the decade, hit when oil prices plunged in 2014.

U.S. crude oil futures CLc1 fell 1% on Tuesday to $61.04 a barrel but were on track for monthly and annual gains, supported by a thaw in the prolonged U.S.-China trade row and Middle East unrest.

Canadian government bond prices were lower across a steeper yield curve, with the two-year CA2YT=RR down 4 Canadian cents to yield 1.699% and the 10-year CA10YT=RR falling 57 Canadian cents to yield 1.704%.

The 10-year yield has fallen about 26 basis points since the start of 2019.

Reporting by Fergal Smith; Editing by David Gregorio and Grant McCool