C$ gains as Russia-Ukraine peace talks boost sentiment

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar edged higher against its U.S. counterpart on Tuesday as signs of progress in peace talks between Russia and Ukraine boosted investor sentiment.

The loonie was up 0.2% at 1.2495 to the greenback, or 80.03 U.S. cents, after trading in a range of 1.2470 to 1.2530. On Friday, it touched its strongest level in more than two months at 1.2462.

"There is some positive sentiment that is blowing into markets from Eastern Europe," said Simon Harvey, head of FX analysis for Monex Europe and Monex Canada.

Equity markets globally climbed and the safe-haven U.S. dollar lost ground as Moscow decided to drastically cut military activity around Kyiv and northern Ukraine.

Gains for equities came despite the part of the U.S. Treasury yield curve between 2-year and 10-year yields flashing warning signs for the economy as it briefly inverted.

Canada's curve has also been flattening as investors bet the country's central bank will begin hiking its key interest rate in half-percentage-point increments, with the first of the rarely used upsized moves possibly coming as soon as next month.

"The market has been slow to come around to the idea that aggressive hiking is needed," said Adam Button, chief currency analyst at ForexLive. "The Bank of Canada will be on the leading edge of that push."

The 10-year yield eased 3.9 basis points to 2.477%, pulling back from its highest level since October 2018 earlier in the day at 2.607%.

The gap between it and the 5-year rate narrowed 2.4 basis points to touch its smallest since March 2020 at 2 basis points.

The price of oil, one of Canada's major exports, settled 1.6% lower at $104.24 a barrel.

Canada's finance minister said the government would present its budget for the upcoming fiscal year on April 7.

(Reporting by Fergal Smith; Editing by Andrea Ricci and Jonathan Oatis)