The Canadian dollar strengthened on Thursday, benefiting from a rally in oil prices and a narrowing gap between Canadian and U.S. bond yields. The currency, known as the loonie, gained 0.1% to trade at C$1.4245 per U.S. dollar, or 70.20 U.S. cents, according to Reuters. This recovery comes after the loonie hit an 18-month low of C$1.4293 on Monday.
The improvement in the loonie's value was supported by a reduction in the yield differential between Canadian and U.S. government bonds, which had reached historically wide levels earlier in the week. Additionally, oil prices surged above $100 a barrel earlier in the session due to concerns over supply disruptions in the Middle East, although gains were later pared following comments from U.S. President Donald Trump.
Despite the recent gains, the loonie remains vulnerable to elevated U.S. yields and the possibility of further interest rate hikes by the Federal Reserve. Minutes from the Fed's latest meeting highlighted inflation as a key concern, with policymakers leaving the door open for additional tightening. Investors are now awaiting Canada's September employment report, set to be released on Friday, which could provide insights into the Bank of Canada's policy outlook. The report is particularly important following a sharp decline in Canadian employment in August, even as the unemployment rate held steady at 6.4%.