Positive thinking helps push C$ to two-month high

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar climbed to its highest level in more than two months against a broadly weaker U.S. counterpart on Thursday as oil prices rose and investors grew more optimistic about the global economic outlook.

The loonie was trading 0.1% higher at 1.2765 per greenback, or 78.34 U.S. cents, after touching its strongest level since June 10 at 1.2729.

"The market is having a rethink of the global growth trajectory," said Adam Button, chief currency analyst at ForexLive. "Since the strong U.S. jobs report, the market is starting to focus on the positives."

Data last week showed that the U.S. economy added more jobs than forecast in July, while signs of a peak in U.S. inflation have fed expectations of smaller-than-anticipated Federal Reserve interest rate hikes.

Canada is a major producer of commodities, including oil, so the loonie tends to be sensitive to shifts in risk appetite.

The S&P 500 index was trading at its highest level in more than three months and oil settled 2.6% higher at $94.34 a barrel.

"The positive economic sentiment is well reflected in the oil price right now," Button said.

Still, the loonie gained less ground than some other commodity-linked currencies including the Australian and New Zealand dollars

Canada's inverted yield curve is signaling the Bank of Canada may raise interest rates to a level that triggers a recession, placing the central bank in a tough spot as it aims to tame high inflation and engineer a "soft landing" for the economy.

Canadian government bond yields were higher across much of a steeper curve, tracking moves in U.S. Treasuries. The 10-year rose 11.5 basis points to 2.790%.

(Reporting by Fergal Smith; Editing by Paul Simao and John Stonestreet)