Loonie gets tailwind from rising Brexit deal hopes

TORONTO (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Tuesday, with investors encouraged by signs of progress between Britain and the European Union to reach an amicable divorce deal.

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

Stocks in Europe and on Wall Street jumped on strong U.S. corporate results and a possible deal to avoid a disorderly Brexit.

On Friday, U.S. President Donald Trump said China and the United States had reached the first phase of a trade deal, which was also supportive of stocks.

Canada is a major exporter of commodities, including oil, and runs a current account deficit, so its economy could benefit from a pick-up in the global flow of trade or capital.

“This move today I would say is the loonie benefiting from positive global tailwinds,” said Brad Schruder, director of corporate sales and structuring at BMO Capital Markets. “There is a chance we see some more CAD appreciation pending tomorrow’s inflation data out of Canada.”

Canada’s inflation report for September, due on Wednesday, could help guide expectations for the Bank of Canada policy outlook. The central bank, which has left interest rates on hold this year even as some of its major peers have eased, is due to make its next rate decision on Oct. 30.

At 4:23 p.m. (2023 GMT), the Canadian dollar CAD=D4 was trading 0.3% higher at 1.3200 to the greenback, or 75.76 U.S. cents.

The currency, which last Friday notched a one-month high at 1.3171 after data showing a much bigger-than-expected domestic jobs gain, traded in a range of 1.3196 to 1.3238.

Oil prices fell as investors worried that the unrelenting U.S.-China trade war would keep squeezing the global economy, and that swelling U.S. crude inventories would further pressure prices. U.S. crude oil futures settled 1.5% lower at $52.81 a barrel.

The International Monetary Fund cut its global growth forecast for 2019 to 3%, its lowest level since the global financial crisis, but its projection for Canada was unchanged from its previous forecast in July at 1.5%.

Canadian government bond prices were lower across the yield curve, with the two-year CA2YT=RR down 7 Canadian cents to yield 1.693% and the 10-year CA10YT=RR falling 40 Canadian cents to yield 1.562%.

The 10-year yield touched its highest intraday level since July 17 at 1.577%.

Reporting by Fergal Smith; Editing by David Gregorio