C$ posts 6-week high on business optimism, oil rally

TORONTO: The Canadian dollar strengthened to a nearly six-week high against its US counterpart on Monday, boosted by higher oil prices and a business survey from the Bank of Canada that supported expectations for further interest rate hikes.

Canadian companies remain optimistic about sales growth despite trade uncertainties, the central bank said in the first-quarter report.

The Bank of Canada has raised interest rates three times since July. Chances of another hike by July edged up to nearly 80 percent from 72 percent before the report, the overnight index swaps market indicated.

"The business outlook survey was fairly friendly to the Canadian dollar," said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets. "The other piece of the puzzle is oil prices ... and the recovery in the WCS (Western Canadian Select) spot price continues."

The price of oil, one of Canada's major exports, was supported by a rebound in the stock market as concerns of a trade war between the United States and China eased. US crude oil futures settled 2.2 percent higher at $63.42 a barrel.

Canadian crude tends to trade at a discount to US crude, due, in part, to supply constraints. But the gap has plunged by more than $13 since March, data from Shorcan Energy showed.

Business groups and local officials called for Canada's government to guarantee that an expansion of the Trans Mountain pipeline is completed, after operator Kinder Morgan Canada halted most work on the C$7.4 billion project.

At 4 p.m. (2000 GMT), the Canadian dollar was trading 0.6 percent higher at C$1.2710 to the greenback, or 78.68 US cents. The currency touched its strongest level since Feb. 27 at C$1.2687.

Last week, stronger-than-expected domestic jobs data and upbeat comments by officials from the United States, Mexico and Canada about the chances of a deal soon to revamp the North American Free Trade Agreement helped boost the loonie by 0.9 percent. Canada sends 75 percent of its exports to the United States.

Still, talks to rework NAFTA are not advanced enough for the three countries to announce a deal "in principle" at this month's Summit of the Americas in Lima, according to two people familiar with the matter.

Canadian government bond prices were mixed across the yield curve, with the two years down 0.5 Canadian cent to yield 1.794 percent and the 10-year rising 3 Canadian cents to yield 2.14 percent.