TORONTO: The Canadian dollar edged higher against its US counterpart on Thursday as the Bank of Canada's more hawkish stance helped underpin bond yields, but gains for the currency were capped by volatility in oil prices.
The loonie was trading 0.1pc higher at 1.2344 to the greenback, or 81.01 US cents, adding to the previous day's rally. It traded in a range of 1.2331 to 1.2382.
"Given the move in rates, that rate differential seems to be driving outperformance of the CAD more than oil or other things," said Tom O'Gorman, director of fixed income at Franklin Templeton Canada.
The gap between Canadian and US 2-year yields widened to as much as 57 basis points in favor of the Canadian bond on Wednesday, its widest since 2014.
The move came after the Bank of Canada signaled it could hike interest rates three months earlier than previously thought, partly due to strong employment gains.
Canadian dollar rises on positive investor sentiment
Canadian payroll employment increased by 59,700 in August, driven by gains in the services-producing sector in Ontario and Quebec, Statistics Canada said on Thursday.
Canadian workers are fast becoming hot commodities in a tight labor market and companies are increasingly forced to raise wages to fill jobs, a factor likely to complicate the Bank of Canada's efforts to tame inflation.
The price of oil, one of Canada's major exports, settled 0.2pc higher at $82.81 a barrel. Earlier, it hit a two-week low as Iran said talks with world powers on its nuclear programme would resume by the end of November.
Canadian government bond yields were mixed across a steeper curve.
The 2-year yield touched its highest level since February 2020 at 1.262pc before sliding to 0.999pc, down 7.7 basis points on the day, while the 10-year yield was up 3.5 basis points at 1.654pc.
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