CANADA FX DEBT-C$ posts 10-day high as investors short the currency take profit

(Adds strategist quotes and details throughout; updates prices)

* Canadian dollar rises 0.3% against the greenback

* Price of U.S. oil falls 3.7%

* Canadian manufacturing PMI rises to highest since August

* Canadian bond yields ease across a flatter curve

By Fergal Smith

TORONTO, Oct 1 (Reuters) – The Canadian dollar strengthened
against its U.S. counterpart on Thursday, as domestic data
showed factory activity expanding in September at its fastest
pace in more than two years and short sellers covered their

The loonie was trading 0.3% higher at 1.3280 to the
greenback, or 75.30 U.S. cents, having touched its strongest
intraday level since Sept. 21 at 1.3268.

It was the second straight day that the loonie has rallied,
after the move higher in USD-CAD since the start of September
peaked on Wednesday at 1.3420, which was an eight-week high.

“I think we had some profit taking (on short Canadian dollar
positions), the last two days, because it (USD-CAD) was stuck up
there,” said Ronald Simpson, managing director, global currency
analysis at Action Economics.

“It was six days in a row that it couldn’t go any higher. So
it didn’t go any higher, everybody started selling,” Simpson

The IHS Markit Canada Manufacturing Purchasing Managers’
index (PMI) rose to a seasonally adjusted 56.0 in September, its
highest level since August 2018, adding to evidence of economic
recovery from the coronavirus crisis.

Still, oil traders have worried that rising coronavirus
cases could dampen the demand outlook. U.S. crude oil futures
settled 3.7% lower at $38.72 a barrel

If oil stays in a lower trading band of $36 to $39 that
could begin to weigh on the loonie, Simpson said.

Canadian government bond yields eased across a flatter
curve. The 10-year dipped 1.6 basis points to
0.550%, pulling back from a three-week high earlier in the day
at 0.605%.

(Reporting by Fergal Smith; editing by Jonathan Oatis and
Cynthia Osterman)
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