The heavily shorted Canadian dollar strengthened to an 11-day high against its U.S. counterpart on Tuesday, with investors managing their currency risk as Americans head to the polls and after data showed a recovery in the services sector in Canada.
The loonie was trading 0.4% higher at 1.3850 per U.S. dollar, or 72.20 U.S. cents, after hitting its highest intraday level since Oct. 25 at 1.3846.
“We may see a liquidation of positions. The Canadian dollar has been a heavily sold currency,” said Adam Button, chief currency analyst at ForexLive.
Speculators increased their bearish bets on the Canadian dollar to the highest level since mid-August.
“The Canadian dollar is, along with the Mexican peso, one of the most sought-after currencies on election night in the foreign exchange market,” said Mr. Button. “Both currencies are strongly linked to U.S. trade and global growth.
Former Republican President Donald Trump, who is neck-and-neck with Democratic Vice President Kamala Harris for president, has proposed sweeping tariffs on imported goods. Canada sends about 75% of its exports to the United States, including oil.
The country posted a higher-than-expected trade deficit of C$1.26 billion ($908 million) in September, mainly due to lower prices that led to a decline in the value of exports, but volumes overall overseas shipments have increased.
Separate data showed Canada's services economy expanded for the first time in five months in October. The overall business activity index rose to 50.4 from 46.4 in September.
The price of oil was up 1.3% at $72.37 a barrel, adding to its gains from the previous day when OPEC+ postponed plans to increase production.
Canadian bond yields rose across the curve, tracking movements in U.S. Treasuries. The 10-year was up 5.8 basis points at 3.293%.
