The Canadian dollar clawed back some recent declines against its U.S. counterpart on Monday as increased concerns about the independence of the Federal Reserve weighed on the greenback.
The loonie was trading 0.3 per cent higher at 1.3875 per U.S. dollar, or 72.07 U.S. cents, after trading in a range of 1.3868 to 1.3917. On Friday, the currency touched a five-week low at 1.3920.
The U.S. dollar fell against a basket of major currencies after the U.S. Department of Justice threatened to indict Federal Reserve Chair Jerome Powell over comments to Congress about a building renovation project. Powell called the action a “pretext” to gain more influence over interest rates.
“I think the Canadian dollar’s rebound has more to do with U.S. political risk than anything happening domestically,” said Tony Valente, senior FX dealer at AscendantFX.
“Headlines around a potential Trump administration criminal investigation into the Fed Chair have unsettled markets and raised concerns about central bank independence, which has weighed on the USD. The loonie is really benefiting from USD weakness rather than a shift in Canadian fundamentals.”
Trump administration’s threat to indict Jerome Powell sparks warnings about Fed independence
Data on Friday showed that the economy added jobs at a slower pace in December, while investors have worried that a boost in Venezuelan oil exports to the United States could hurt Canadian companies that sell a similar heavy oil.
The price of oil was trading 0.2 per cent higher at $59.25 a barrel as investors weighed anti-government demonstrations in major oil producer Iran.
Prime Minister Mark Carney has vowed to diversify Canada’s exports away from the United States. He is set to visit China this week.
Bond yields edged higher across the curve, with the 10-year up 0.7 basis points at 3.400 per cent.
