TORONTO, Aug 7 (Reuters) – The Canadian dollar strengthened against its U.S. counterpart on Wednesday as investors assessed whether the recent sell-off in the currency had run its course and despite the Bank of Canada worrying about the outlook for the domestic economy.
The loonie was trading 0.3% higher at 1.3750 per U.S. dollar, or 72.73 U.S. cents, after touching its strongest intraday level since July 22 at 1.3719.
The currency was extending its recovery from a near two-year low at 1.3946, which it hit on Monday when Canadian financial markets were closed and markets globally turned volatile.
Winding down of yen-funded carry trades and concern the Federal Reserve has waited too long to cut interest rates spooked investors in recent days.
“That volatility we saw in stocks on Monday, when Canada was effectively out, probably was the low point for the Canadian dollar,” said Shaun Osborne, chief currency strategist at Scotiabank.
“The market is extremely short Canadian dollars … that should be a bit of a warning light on the dashboard that the CAD sell-off has possibly gone a bit too far.”
Speculators have raised their bearish bets on the Canadian dollar to an all-time high, recent data from the U.S. Commodity Futures Trading Commission showed.
Ahead of their decision to cut rates last month, BoC governors fretted that consumer spending in 2025 and 2026 could be significantly weaker than expected, minutes of the meeting showed.
MSCI’s gauge of stocks across the globe (.MIWD00000PUS), opens new tab rose, while the price of oil , one of Canada’s major exports, bounced back from multi-month lows on concerns that an escalating conflict in the Middle East could hurt oil production. U.S. crude futures settled 2.8% higher at $75.23 a barrel.
Canadian bond yields moved higher across the curve, tracking moves in U.S. Treasuries. The 10-year was up 5.5 basis points at 3.172%.
Reporting by Fergal Smith; editing by Jonathan Oatis
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