The Canadian dollar strengthened against its U.S. counterpart on Tuesday, with the currency clawing back some of its decline from the prior day as oil prices rose and domestic data showed factory activity expanding at the slowest pace in five months.
The price of oil, one of Canada’s major exports, rose as OPEC+ producers agreed to stick with their planned increase for February based on indications that the Omicron coronavirus variant would have only a mild impact on demand.
U.S. crude prices climbed 1.6% to $77.27 a barrel, while the Canadian dollar was trading 0.4% higher at 1.2685 to the greenback, or 78.83 U.S. cents. It traded in a range of 1.2681 to 1.2765.
On Monday, the currency lost ground as expectations that the Federal Reserve would raise interest rates multiple times this year bolstered the greenback and Ontario, Canada’s most populous province, announced restrictions to curb the spread of the coronavirus.
The loonie was the only G10 currency to advance against the U.S. dollar in 2021.
The IHS Markit Canada Manufacturing Purchasing Managers’ Index (PMI) fell to a seasonally adjusted 56.5 in December from 57.2 in November as material shortages and delivery delays held back output.
A reading above 50 shows growth in the sector but the latest reading was the lowest since July.
Canada’s jobs report for December, due on Friday, could provide further clues on the strength of the domestic economy.
Canadian government bond yields surged across a steeper curve, playing catch-up with a move in U.S. Treasuries on Monday when the Canadian market was closed for a public holiday.
The 10-year yield was up 18.5 basis points at 1.615%, trading at its highest level in more than one month.
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