Canadian dollar posts 10-day high as investors short the currency take profit

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

TORONTO (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Thursday, as domestic data showed factory activity expanding in September at its fastest pace in more than two years and short sellers covered their positions.

The loonie CAD= was trading 0.3% higher at 1.3280 to the greenback, or 75.30 U.S. cents, having touched its strongest intraday level since Sept. 21 at 1.3268.

It was the second straight day that the loonie has rallied, after the move higher in USD-CAD since the start of September peaked on Wednesday at 1.3420, which was an eight-week high.

“I think we had some profit taking (on short Canadian dollar positions), the last two days, because it (USD-CAD) was stuck up there,” said Ronald Simpson, managing director, global currency analysis at Action Economics.

“It was six days in a row that it couldn’t go any higher. So it didn’t go any higher, everybody started selling,” Simpson said.

The IHS Markit Canada Manufacturing Purchasing Managers’ index (PMI) rose to a seasonally adjusted 56.0 in September, its highest level since August 2018, adding to evidence of economic recovery from the coronavirus crisis.

Still, oil traders have worried that rising coronavirus cases could dampen the demand outlook. U.S. crude oil futures CLc1 settled 3.7% lower at $38.72 a barrel

If oil stays in a lower trading band of $36 to $39 that could begin to weigh on the loonie, Simpson said.

Canadian government bond yields eased across a flatter curve. The 10-year CA10YT=RR dipped 1.6 basis points to 0.550%, pulling back from a three-week high earlier in the day at 0.605%.

Reporting by Fergal Smith; editing by Jonathan Oatis and Cynthia Osterman