The Canadian dollar strengthened to an 11-day high against the greenback on Tuesday, boosted by a rise in stocks and growing expectations of a Bank of Canada interest rate hike next week.
Stocks gained as upbeat earnings reports helped ease jitters over the impact of various global issues, including tariffs, on corporate profits.
“The big story in markets is that sentiment has turned,” said Adam Button, a currency analyst at ForexLive. “The Canadian dollar is a pro-growth currency and the fears about emerging markets and interest rates have completely dissipated for the moment.”
Canadian business optimism remained at near-record levels in the third quarter as companies reported rising pressure on capacity, labour and prices amid signs of stronger sales, the Bank of Canada said on Monday.
The central bank has raised rates four times since July 2017. Its policy rate is currently 1.50 per cent.
Chances of another rate hike at the Oct. 24 announcement have climbed to more than 90 per cent. They were less than 80 per cent before a deal to revamp the North American Free Trade Agreement was struck at the end of September.
“The money that is going into the Canadian dollar right now is expecting a hawkish Bank of Canada next week,” Button said.
At 4:22 p.m. (2022 GMT), the Canadian dollar was trading 0.4 per cent higher at 1.2940 to the greenback, or 77.28 U.S. cents. The currency touched its strongest level since Oct. 5 at 1.2915.
The price of oil, one of Canada’s major exports, was supported by worries that crude supply from the Middle East could be disrupted by looming U.S. sanctions on Iran and growing tensions with top exporter Saudi Arabia.
U.S. crude oil futures settled 0.2 per cent higher at $71.92 a barrel.
Foreign investors bought a net C$2.82-billion in Canadian securities in August, following a revised C$15.29-billion total purchase in July, Statistics Canada said. It was the lowest monthly investment since the beginning of the year.
Canadian government bond prices were mixed across the yield curve, with the 10-year rising 4 Canadian cents to yield 2.497 per cent.
Earlier this month, the 10-year yield touched its highest level in nearly five years at 2.615 per cent.