C$ posts biggest gain in two years as risk appetite rebounds

FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar on Monday notched its biggest gain in more than two years against its U.S. counterpart as oil prices jumped and investors grew less fearful of owning beaten-down financial assets entering the final quarter of the year.

The Canadian dollar was up 1.4% at 1.3630 to the greenback, or 73.37 U.S. cents, its biggest advance since June 2020. On Friday, it touched its weakest intraday level since May 2020 at 1.3838.

Commodity currencies were boosted by the "rebound in risk appetite," said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York.

"Markets are likely to remain volatile, but if we don't move back above 1.3700 in USD-CAD over the next few days, we may start to see (additional) selling pressure."

The price of oil, one of Canada's major exports, rose as OPEC+ considered reducing output by more than 1 million barrels per day to buttress prices with what would be its biggest cut since the start of the COVID-19 pandemic.

U.S. crude prices settled 5.2% higher at $83.63 a barrel, while Wall Street rallied and bond yields fell as investors bet that economic weakness could slow inflation and ensuing efforts by the Federal Reserve to continue hiking interest rates.

Domestic data showed that manufacturing activity contracted for a second straight month in September as higher borrowing costs and an uncertain economic outlook contributed to a drop in new orders, but the pace of decline lessened.

The S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) rose to a seasonally adjusted 49.8 in September after falling to 48.7 in August, its lowest level since June 2020.

Canadian government bond yields were lower across the curve, tracking the move in U.S. Treasuries. The 10-year eased 3.7 basis points to 3.133%.

(Reporting by Fergal Smith in Toronto; Editing by Andrea Ricci and Matthew Lewis)