Canadian dollar clings to much of March rally as oil rises

TORONTO: The Canadian dollar edged lower against its US counterpart on Thursday, but held on to much of its March gains as oil rose and domestic data showed factory activity expanding at a record pace last month.

The IHS Markit Canada Manufacturing Purchasing Managers' index (PMI) rose to a seasonally adjusted 58.5 in March from 54.8 in February, posting the highest reading in the 10-year history of the survey. Separate data from Statistics Canada showed that the value of building permits rose by 2.1% in February from a month earlier, beating expectations of a 1.4% decline.

US crude prices were up 2.4% at $60.56 a barrel on optimism about economic recovery and hopes that OPEC and its allies will keep production curbs in place, while US President Joe Biden's sweeping $2.3 trillion plan to rebuild America's crumbling infrastructure helped boost stock markets globally.

The Canadian dollar was trading 0.1% lower at 1.2575 to the greenback, or 79.52 US cents, having traded in a range of 1.2556 to 1.2602. In March, the loonie advanced 1.4%, while it was also up 1.4% for the first quarter, the best performance among G10 currencies.

Analysts have raised their Canadian dollar forecasts for the coming year, expecting the currency to benefit from faster growth in the domestic economy and a potential reduction by the Bank of Canada of its bond purchases, a Reuters poll showed. Still, Canada is facing a potential third wave of COVID-19 infections. Ontario, the country's most populous province, will enter another lockdown on the weekend for 28 days, local media reported.

Canadian government bond yields fell across a flatter curve in sympathy with U.S. Treasuries. The 10-year was down 4.3 basis points at 1.517%.