* Loonie touches a three-week high at 1.3316
* Price of U.S. oil settles 2.6% higher
* Canadian bond yields rise across curve
TORONTO, May 8 (Reuters) – The Canadian dollar was
little changed against its U.S. counterpart on Monday, with the
currency holding near an earlier three-week high supported by
higher oil prices and recent narrowing in the gap between U.S.
and Canadian bond yields.
The loonie was trading nearly unchanged at 1.3370 to
the greenback, or 74.79 U.S. cents, after touching its strongest
intraday level since April 14 at 1.3316.
“The strength in the (Canadian) dollar is really driven to a
large extent by narrowing interest rate spreads,” said Benjamin
Reitzes, Canadian rates & macro strategist at BMO Capital
Markets. “The rebound in oil prices hasn’t hurt either but the
rate story is probably the bigger one.”
The gap between Canada’s 2-year yield and its U.S.
equivalent has narrowed to 24 basis points in favor of the U.S.
bond from as much as 76 basis points in March as confidence rose
that the Federal Reserve is nearing a pause in its interest rate
hiking campaign.
Oil, one of Canada’s major exports, clawed back some recent
losses for a second straight day, settling 2.6% higher at $73.16
a barrel, as U.S. recession fears eased.
Still, speculators have raised their bearish bets on the
Canadian dollar, data from the U.S. Commodity Futures Trading
Commission showed on Friday. As of May 2, net short positions
had increased to 50,096 contracts from 43,791 in the prior week.
Meanwhile, the Bank of Canada has launched public
consultations on the features that could be included in a
digital Canadian dollar, in an exploratory move to gauge the
viability of a digital version of the currency.
Canadian government bond yields were higher across the
curve, tracking moves in U.S. Treasuries. The 10-year
touched its highest level since April 20 at 2.998%
before dipping to 2.957%, up 4.1 basis points on the day.
(Reporting by Fergal Smith; Editing by Andrea Ricci)
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