Market News

By Fergal Smith

• Canadian dollar gains 0.2% against the greenback
• Touches its strongest since April 10
• Price of US oil decreases 2%
• Canada-US 2-year spread narrows 6.2 basis points

TORONTO, Aug 21 (Reuters) - The Canadian dollar rose to a four-month high against its U.S. counterpart on Wednesday as the prospect of Federal Reserve rate cuts helped underpin investor sentiment, despite the risk of a railway stoppage that could hurt the domestic economy.
The loonie was trading 0.2% higher at 1.3590 to the U.S. dollar, or 73.58 U.S. cents, after touching its strongest intraday level since April 10 at 1.3576.

The currency has benefited recently from "a shift in market confidence," as investors anticipate the Fed will soon begin an easing cycle, said Darren Richardson, chief operating officer at Richardson International Currency Exchange.
U.S. employers added far fewer jobs than originally reported in the year through March, underscoring the growing concerns the Fed has about the health of the labor market as it gears up to start cutting interest rates in September.

The data weighed on the U.S. dollar (.DXY), which extended recent declines against a basket of major currencies. Domestic data had little impact, showing that producer prices were unchanged in July from June and rose 2.9% year-over-year. Analysts say the Bank of Canada has shifted its focus from suppressing inflation to boosting the economy. Activity could suffer if Canada's two big railroad operators halt operations as planned on Thursday should labor agreements remain out of reach.

Recent declines for the price of oil could also weigh on Canada's commodity-linked economy. U.S. crude oil futures were trading 2% lower at $71.72 a barrel.
Canadian government bond yields eased across the curve, with the 2-year down 2 basis points at 3.246%.
Still, the gap between Canada's 2-year rate and the U.S. equivalent narrowed by 6.2 basis points to roughly 67 basis points in favor of the U.S. note, the narrowest gap since mid-July.