The Canadian dollar was little changed against its broadly stronger U.S. counterpart on Tuesday, holding on to most of the gains that followed a deal over the weekend to revamp the NAFTA trade pact.
The deal to salvage the trilateral North American Free Trade Agreement has reduced uncertainty for Canada’s trade-dependent economy, boosting investor expectations for as many as four additional interest rate increases from the Bank of Canada by the end of 2019.
The first of those hikes is expected at the bank’s Oct. 24 policy meeting.
Buoyed by the trade deal, Canada has been pressing Washington to remove steel and aluminum tariffs.
A U.S. agreement to drop metal tariffs could trigger additional gains for the loonie, said Greg Anderson, global head of foreign exchange strategy in New York at BMO Capital Markets.
The U.S. dollar climbed against a basket of currencies as the euro was pressured by Italian political developments.
At 3:38 p.m. (1938 GMT), the Canadian dollar was trading nearly unchanged at $1.2819 to the greenback, or 78.01 U.S. cents, outperforming every other G10 currency except the safe-haven yen and Swiss franc.
The loonie, which on Monday touched its strongest level in more than four months at $1.2783, traded in a narrow range between 1.2800 and 1.2840.
Its outperformance came as a massive liquefied natural gas (LNG) export project in Canada received final approval from its partners, making it the first major new project for the fuel to win approval in recent years.
The price of oil, one of Canada’s major exports, remained near its highest since November 2014 as markets braced for tighter supply. U.S. crude oil futures settled 0.1 percent lower at $75.23 a barrel.
Canadian government bond prices were higher across a flatter yield curve in sympathy with U.S. Treasuries, with the 10-year
rising 35 Canadian cents to yield 2.464 percent. The yield on the 10-year on Monday reached 2.519 percent, its highest in more than four months.
The center-right Coalition Avenir Quebec, campaigning on a promise to curb immigration, won power for the first time in Canada’s Quebec province on Monday, ousting the Liberal incumbents.
The yield on Quebec’s 10-year bond fell 6 basis points to 3.056 percent, which was more than the 5-basis-points drop for Ontario’s bond of the same maturity.
Canada’s jobs data for September and August trade data are due on Friday.