Canadian Dollar Strengthens on Wider-Than-Expected Trade Surplus

The Canadian dollar strengthened against the US dollar on Tuesday, following the release of better-than-expected trade data. Canada’s trade surplus expanded to C$4.2 billion in August, surpassing economists’ forecasts of C$1.55 billion. The surplus had been revised upward to C$787 million from the previous month. Exporters increased shipments to the US ahead of new tariffs imposed by President Donald Trump, contributing to the wider surplus.

The loonie rose by 0.3% to C$1.4220 per US dollar, or 70.32 US cents, after trading between C$1.4215 and C$1.4282. The currency had hit an 18-month low of C$1.4293 on Monday. Rahim Madhavji, president of KnightsbridgeFX, noted that while the Canadian dollar had been mostly defensive, it gained ground due to the trade surplus news and a potential overbought US dollar.

The US dollar weakened against a basket of major currencies as concerns over eurozone debt markets eased, and oil prices declined. US crude futures dropped 0.3% to $89.19 a barrel amid rising supply from the Middle East and a G7 agreement to release emergency oil reserves.

Canadian government bond yields fell slightly, with the 10-year yield declining by 2 basis points to 3.932%. The spread between Quebec’s 10-year bond yield and the equivalent Canadian government bond yield narrowed by 5 basis points to 48 basis points after a separatist party won Monday’s provincial election but failed to secure a majority.

Economists are watching Canada’s September employment report, due on Friday, for further insights into the domestic economy. The report is expected to show an addition of 9,200 jobs, with the unemployment rate forecast to rise to 6.5% from 6.4% in August.