TORONTO: The Canadian dollar strengthened against the greenback on Wednesday, extending the previous session's gains as it benefited from broad US dollar weakness and as investors looked ahead to key data releases at the end of the week.
The rally in the US currency over the past two months has been one of the major forces behind the loonie's recent weakness that sent it close to the key resistance level of C$1.10 earlier in the week.
The softness in the greenback on Wednesday drove the Canadian dollar to a one-week high, with the currency pairing testing support around C$1.09.
"As much as we want to look at Canadian specific factors, I think the bigger story is just a broader US dollar move lower, where you're getting some of the geopolitical premium that had been priced in slipping away," said David Tulk, chief Canada macro strategist at TD Securities in Toronto.
The leaders of Ukraine and Russia held talks late Tuesday on resolving the five-month conflict between the two countries. Meanwhile, an open-ended ceasefire in the Gaza war was holding.
The Canadian dollar was at C$1.0894 to the greenback, or 91.79 US cents, stronger than Tuesday's close of C$1.0952, or 91.31 US cents.
A quiet economic calendar has left the loonie without many domestic catalysts until the gross domestic product report is released on Friday. Analysts forecast the economy picked up to a 2.7 percent rate of growth in the second quarter, bouncing back from a slowdown in the first three months of the year.
Although there is a risk that growth could accelerate more than the market expects, that is unlikely to cause the Bank of Canada to alter its cautious tone when it releases its monetary policy statement next week, said Tulk.
"We've seen this from the bank time and time again; anything that looks like it's either stronger than forecast or something with a seemingly positive undertone, they are inclined to find
the dark cloud hanging somewhere out in the distance. That's their overarching strategy, just to sound as cautious as they can."
Canadian government bond prices were higher across the maturity curve, with the two-year up 1-1/2 Canadian cents to yield 1.097 percent and the benchmark 10-year up 28 Canadian cents to yield 2.014 percent.
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