TORONTO: The Canadian dollar strengthened against the greenback on Thursday after oil prices jumped on news that Saudi Arabia and its allies carried out air strikes in Yemen and after Bank of Canada Governor Stephen Poloz gave a speech that was less dovish than expected.
Stock markets worldwide were knocked lower after the air strikes in Yemen fueled worries that Middle East energy shipments may be put at risk, although Wall Street later recovered.
As the oil rally faded a bit, Poloz said the bank's quarter-point rate cut in January has bought it time to examine the effects of cheaper oil on the economy of Canada, a major oil producer. The remarks underscored the possibility the central bank will keep interest rates steady next month.
Poloz allowed the possibility that first-quarter economic growth might come in lower than the bank's 1.5 percent forecast, and he did not rule out a negative reading, though he said growth was expected to bounce back later this year.
"Oil is the major driver today for the Canadian dollar, and along with the rally in oil prices, you have Poloz saying the Bank of Canada probably won't cut rates even if the economy weakens, and altogether that puts the Canadian dollar up about half a cent on the day," said Adam Button, currency analyst at ForexLive in Montreal.
The Canadian dollar ended the North American session at C$1.2471 to the greenback, or 80.19 US cents, up from Wednesday's session close of C$1.2517, or 79.89 US cents. It had strengthened as far as C$1.2410 on the airstrikes overnight, but gave up some gains later in the session.
Canadian government bond prices were lower across the maturity curve, with the two-year down 15 Canadian cents to yield 0.585 percent and the benchmark 10-year down 88 Canadian cents to yield 1.434 percent.
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