The Canadian dollar rose to fresh 14-month highs against its broadly weaker U.S. counterpart on Tuesday as concerns over a policy deadlock in Washington and doubts over the Federal Reserve’s rate hike plans pressured the greenback lower.
The greenback weakened across the board after a second attempt by Republicans to replace Obamacare collapsed late Monday, delivering a major policy blow to the Trump administration.
Around half of the cuts in health-care spending were earmarked to finance proposed tax cuts. The failure to deliver healthcare reform added to disappointment over the lack of progress on Trump’s economic agenda.
The dollar was already on the defensive after Friday’s weak U.S. inflation and retail sales data added to doubts that the Fed will be able to raise interest rates again this year.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.65% to an 11-month low of 94.3.
Demand for the loonie continued to be underpinned after the Bank of Canada raised interest rates for the first time in almost seven years last Wednesday and indicated that it will need to hike again in the coming months.
The loonie found additional support as prices for oil, a major Canadian export jumped higher on Tuesday.
Oil was boosted by reports that Libya will attend a meeting of OPEC and non-OPEC producers in Russia later this month, sparking speculation that the country may join a global pact to reduce output in a bid to rebalance oversupplied markets.