Canadian Dollar Gains as Trade Surplus Beats Forecasts

The Canadian dollar strengthened on Tuesday, buoyed by a larger-than-expected expansion in the country's trade surplus and a slight retreat in the US dollar. The loonie, as the Canadian dollar is often called, rose 0.3% to 1.4220 per US dollar, or 70.32 US cents, after hitting an 18-month low of 1.4293 on Monday.

Canada's trade surplus widened to C$4.2 billion ($2.94 billion) in August, surpassing economists' forecasts of C$1.55 billion. The surge was driven by exporters accelerating shipments to the US ahead of new tariffs imposed by President Donald Trump. Rahim Madhavji, president at KnightsbridgeFX.com, noted that the loonie's rally was supported by the trade data and some pullback in the US dollar, which had been overbought.

The US dollar weakened against a basket of major currencies as fears about euro zone debt markets eased and oil prices fell. US crude oil futures dropped 0.3% to $89.19 a barrel due to easing supply concerns and a decision by the Group of Seven countries to release emergency stockpiles. Canadian government bond yields declined, with the 10-year yield falling 2 basis points to 3.932%.

The gap between Quebec's 10-year yield and the yield on the equivalent government of Canada bond narrowed by 5 basis points to 48 basis points after a separatist party won the province's election on Monday but fell short of a majority. Upcoming Canadian employment data for September, due on Friday, is expected to show a jobs gain of 9,200 and a slight increase in the unemployment rate to 6.5% from 6.4% in August.