Canadian dollar gains as risk aversion recovers post-Brexit vote

By Alastair Sharp TORONTO (Reuters) - The risk-sensitive Canadian dollar ended stronger against the U.S. currency on Tuesday, as global financial markets stabilized after two days of volatile moves following Britain's vote to leave the European Union. The loonie, as Canada's currency is colloquially known, also gained against the safe-haven Swiss franc and Japanese yen, although it traded weaker against a string of other currencies. The loonie on Monday hit a three-week low against the greenback at C$1.3120 as Brexit-related shockwaves filtered through global financial markets. "I don't think the mood has changed all that much, all we're seeing is a bit of a recovery from the price action we've seen since the referendum result was released," said Bipan Rai, director of foreign exchange strategy at CIBC Capital Markets. The Canadian dollar settled at C$1.3035 to the greenback, or 76.72 U.S. cents, up from than Monday's close of C$1.3073, or 76.49 U.S. cents. Its strongest level of the session was at C$1.2967, while its weakest was C$1.3108. Global stocks rose as bargain-hunting trumped still widespread uncertainty over Brexit while oil prices rallied as investors took advantage of low prices after a two-day slide. But Canada's commodity-linked economy will likely suffer weaker growth post-Brexit, which has put the prospect of interest rate cuts by the Bank of Canada back on the table. Overnight index swaps implied a nearly one-third chance of a BoC rate cut this year after pricing in no change in policy before Brexit. "Given the still pronounced economic headwind that Canada is facing, I think it's reasonable to expect that dollar-Canada should be trading up close to the C$1.36-$1.37 area in the coming months," CIBC's Rai said. Canadian government bond prices were flat to slightly lower across the maturity curve as the rally in safe-haven assets paused. The two-year price dipped 1.5 Canadian cents to yield 0.496 percent and the benchmark 10-year was unchanged to yield 1.079 percent. On Monday, the 10-year yield hit its lowest in 11 days at 1.077 percent. Canadian gross domestic product data for April is due on Thursday, and CIBC's Rai said that print "could tip the balance of things one way or the other." Economic growth is expected to have edged up 0.1 percent following two months of declines. (Reporting by Fergal Smith; editing by Marguerita Choy and G Crosse)