U.S. Markets

Canadian dollar posts biggest gain in 2-1/2 months on Omicron hope

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  • Canadian dollar strengthens 0.8% against the greenback
  • Touches strongest since Nov. 22 at 1.2633
  • Canada posts a trade surplus of C$2.1 billion in October
  • Price of U.S. oil settles 3.7% higher

TORONTO, Dec 7 (Reuters) - The Canadian dollar strengthened to a two-week high against its U.S. counterpart on Tuesday as concern about the economic threat of the Omicron coronavirus variant receded and data showed Canada posting its biggest trade surplus in nearly a decade.

The loonie was trading 0.8% higher at 1.2647 to the greenback, or 79.07 U.S. cents, its biggest gain since Sept. 23. The currency touched its strongest intraday level since Nov. 22 at 1.2633.

"The market is taking an optimistic view of the severity of the Omicron variant and the Canadian dollar is benefiting from that," said Adam Button, chief currency analyst at ForexLive.

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Wall Street's main indexes rallied strongly, while the price of oil , one of Canada's major exports, settled 3.7% higher at $72.05 a barrel. read more

Investors had worried in recent days that governments could impose fresh restrictions to curb the spread of the new variant. But the Reserve Bank of Australia expressed confidence that the variant would not thwart economic recovery. read more

"There are signs that central banks aren't overly concerned about Omicron and that may translate into a hawkish Bank of Canada," Button said.

The Bank of Canada is due to make an interest rate announcement on Wednesday. Money markets expect a rate hike in March, which is an earlier time frame than the central bank has been guiding.

Canada posted a trade surplus of C$2.1 billion in October, with imports and exports both hitting record levels on higher trade in motor vehicles. read more

"This report adds to the evidence that the economy had strong momentum to start Q4," Benjamin Reitzes, Canadian rates & macro strategist at BMO Capital Markets, said in a note.

Canadian government bond yields rose across the curve, tracking the move in U.S. Treasuries. The 10-year rate was up 6.1 basis points to 1.584%.

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Reporting by Fergal Smith; Editing by Alistair Bell and Peter Cooney

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