Canadian Dollar Strengthens as Domestic Data and Iran Hopes Boost Loonie

The Canadian dollar strengthened against its US counterpart on Wednesday as the greenback posted broad-based declines. The loonie was trading 0.3% higher at 1.4025 per U.S. dollar, or 71.30 U.S. cents.

This came after recent domestic data lent support to the Canadian currency. Canada's trade surplus hit a four-year high in June and the manufacturing sector expanded in July at the fastest pace in more than four years, according to data released on Tuesday.

Shaun Osborne and Eric Theoret, strategists at Scotiabank, pointed out that stable front-end spreads and relative data surprises could lead to modest fundamental improvement in the Canadian dollar. They also noted that Canada's 2-year yield was trading about 136 basis points below the equivalent U.S. rate.

The strengthening of the loonie was partly due to revived hopes of an end to the war with Iran, which blunted safe-haven demand for the US dollar. However, Canadian government bond yields edged higher across the curve, with the 10-year up 1.9 basis points at 3.568 per cent.