Canadian dollar dips; decline limited by ‘petrocurrency’ status

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Canadian dollar weakens 0.1% against the greenback
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Trades in a range of 1.3473 to 1.3507
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Price of U.S. oil settles 0.4% higher
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Bond yields rise across the curve
By Fergal Smith
TORONTO, Oct 2 (Reuters) – The Canadian dollar edged lower against its broadly stronger U.S. counterpart on Wednesday but the move was limited as oil prices added to the previous day’s sharp gains.
The loonie was trading 0.1% lower at 1.35 to the U.S. dollar, or 74.07 U.S. cents, after trading in a range of 1.3473 to 1.3507.
On Tuesday, it was the top performing Group of Ten currency as the price of oil jumped on worries that the escalating conflict in the Middle East could threaten supplies from the world’s top producing region.
Oil, which settled 0.4% higher on Wednesday at $70.10 a barrel, is one of Canada’s major exports.
“The Canadian dollar is acting like a petrocurrency once again, but we don’t think this will last,” Karl Schamotta, chief market strategist at Corpay, said in a note, referring to the tendency of currencies from oil-producing nations to benefit from higher oil prices.
“The Canadian energy sector is no longer the recipient of massive inward investment, and Canada’s economic fundamentals remain consistent with a monetary easing trajectory that matches – and even exceeds – the Federal Reserve’s,” Schamotta said.
The U.S. dollar rose to a near three-week high against a basket of major currencies after data showed U.S. private payrolls increased more than expected in September.
Improving U.S. economic data has contributed to reduced bets of another supersized interest rate cut by the Federal Reserve next month. The Bank of Canada began its interest rate cutting campaign ahead of the Fed and from a lower starting point.
Investors expect the BoC to reduce its policy rate by nearly two percentage points further to a level of 2.32% by December 2025. Over the same time frame, the Fed is expected to ease to 2.93%.
Canadian bond yields moved higher across the curve, with the 10-year up 7.5 basis points at 3.021%. (Reporting by Fergal Smith; Editing by David Gregorio)