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Canadian dollar recovers from eight-day low as oil rallies

FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar was little changed against its U.S. counterpart on Tuesday, clawing back its earlier losses, as oil prices rose and the greenback posted broad-based gains.

The loonie was trading nearly unchanged at 1.3505 to the greenback, or 74.05 U.S. cents, after touching its weakest intraday level since May 15 at 1.3548.

"The Canadian dollar has been on the defensive since Monday morning due to widespread demand for U.S. dollars," Rahim Madhavji, president at Knightsbridge Foreign Exchange, said in a note.

The U.S. dollar notched a two-month high against a basket of major currencies after hawkish comments from Federal Reserve officials led investors to position for the possibility of further interest rate hikes.

Wall Street indexes fell as deadlocked U.S. debt ceiling talks kept investors jittery on prospects of an unprecedented government default but the price of oil, one of Canada's major exports, settled 1.2% higher at $72.91 a barrel.

Oil rallied after a warning from the Saudi energy minister to speculators that raised the prospect of further OPEC+ output cuts.

Meanwhile, domestic data showed that producer prices fell by 0.2% in April from March on lower prices for refined petroleum energy products, as well as softwood lumber.

Canadian government bond yields rose across the curve, catching up with moves in U.S. Treasuries as the Canadian market reopened following the Victoria Day holiday on Monday.

The 10-year yield touched its highest level since March 9 at 3.258% before dipping slightly to 3.237%, up 10.1 basis points on the day.

(Reporting by Fergal Smith; Editing by Andrea Ricci)