Canadian dollar rallies on stimulus hopes, but monthly win streak ends

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

TORONTO (Reuters) - The Canadian dollar strengthened to a one-week high against the greenback on Wednesday as hopes of additional U.S. stimulus rose and data showed the domestic economy extending its recovery, with the loonie clawing back some of this month’s decline.

The loonie CAD= was trading 0.5% higher at 1.3323 to the greenback, or 75.06 U.S. cents. The currency touched its strongest intraday level since last Wednesday at 1.3301.

Still, the loonie posted a monthly decline for the first time since March as rising Canadian coronavirus cases weighed on investor sentiment. It ended September 2.1% lower.

The big driver for investors was news “that there’s some progress on the U.S. stimulus bill,” said Amo Sahota, director at Klarity FX in San Francisco. “Any motion in that direction is lifting market sentiment up, and that’s beneficial for the loonie.”

Canada sends about 75% of its exports to the United States, including oil. U.S. crude futures CLc1 settled 2.4% higher at $40.22 a barrel, while shares on Wall Street rose.

U.S. House of Representatives Speaker Nancy Pelosi and U.S. Treasury Secretary Steven Mnuchin expressed hope for a breakthrough in partisan stimulus negotiations in Congress.

The Canadian economy expanded by 3% in July from June as businesses across the country continued to reopen from coronavirus-related shutdowns, with growth expected to grow at a pace of 1% in August.

Canada’s economy could suffer a smaller hit from a second wave of the coronavirus pandemic than earlier this year, as provinces strive to avoid broad-based lockdowns and take targeted measures to deal with outbreaks, strategists say.

Canadian government bond yields rose across a steeper curve, with the 10-year CA10YT=RR up 3.3 basis points at 0.569%.

Reporting by Fergal Smith; Editing by Nick Zieminski and Paul Simao