Loonie recovers from one-month low as risk appetite climbs

TORONTO (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Friday, lagging behind some other commodity-linked currencies but recovering from a one-month low the day before as investors grew more hopeful about a U.S.-China trade 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/File Photo

At 3:18 p.m. (2018 GMT), the Canadian dollar was trading 0.2% higher at 1.3226 to the greenback, or 75.61 U.S. cents.

The currency, which hit a one-month low at 1.3270 on Thursday, traded in a range of 1.3217 to 1.3252. For the week, the loonie was nearly unchanged.

Wall Street’s main stock indexes hit record highs after White House economic adviser Larry Kudlow said on Thursday that the United States and China were nearing a deal.

Canada is a major exporter of commodities, including oil, so its economy could benefit from an improved global trade outlook. U.S. crude oil futures settled 1.7% higher at $57.72 a barrel.

There is “a bit more of a pro-risk bias in the markets that has lifted the commodity currencies generally but CAD has been left behind in that move,” said Shaun Osborne, chief currency strategist at Scotiabank.

Commodity-linked currencies, such as the Australian dollar and the New Zealand dollar posted stronger gains than the loonie, up 0.4% and 0.3% respectively.

“We are pretty much in a holding pattern here around about 1.3250 (in USD-CAD) until we get some more information and we should get some more information next week,” Osborne said.

Canada’s inflation report for October is due next Wednesday and September retail sales data is due next Friday, both of which could help guide expectations for Bank of Canada interest rate cuts.

Bank of Canada Governor Stephen Poloz is due to speak next Thursday. The loonie has declined as much as 1.5% since Oct. 30, when the central bank left the door open to a possible interest rate cut over the coming months to help the economy weather trade uncertainty.

Canadian government bond prices were lower across the yield curve in sympathy with U.S. Treasuries as increased risk appetite reduced demand for government bonds.

The 10-year fell 21 Canadian cents to yield 1.487%. On Thursday, the 10-year yield touched its lowest intraday level since Nov. 4 at 1.464%.

Foreign investors bought a net C$4.76 billion in Canadian securities in September, Statistics Canada said on Friday. Separate data from the Canadian Real Estate Association showed homes sales held steady in October.

Reporting by Fergal Smith; Editing by Nick Zieminski and Tom Brown