Rising risk appetite lifts Canadian dollar to two-week high

FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar strengthened to a two-week high against its U.S. counterpart on Thursday along with gains for other commodity-linked currencies as investors cheered progress toward passing a U.S. debt ceiling bill.

The loonie was trading 0.9% higher at 1.3445 to the greenback, or 74.38 U.S. cents, after touching its strongest intraday level since May 16 at 1.3434.

Other commodity linked-currencies such as the Australia and New Zealand dollars also moved higher.

"That suggest it's a risk-on recovery, likely fueled by optimism on the debt deal passing the House of Representatives so quickly and now ready for the Senate approval," said Amo Sahota, director at Klarity FX in San Francisco.

The U.S. House of Representatives passed a bill to suspend the U.S. debt ceiling on Wednesday evening. The Senate will stay in session until it passes the measure, Democratic Majority Leader Chuck Schumer said on Thursday.

The rebound in oil prices was also supportive of the loonie, Sahota said.

The price of oil, one of Canada's major exports, settled nearly 3% higher at $70.70 a barrel, recouping some recent declines ahead of an OPEC+ meeting on Sunday. Wall Street stocks also rose.

Domestic data showed manufacturing activity slowed in May as high inflation and inventory cutting held back customer demand. The S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) fell to a seasonally adjusted 49.0 in May from 50.2 in April.

Meanwhile, a slowdown in Canada's residential construction activity in recent months could thwart government plans to reduce a housing shortfall and add to the recovery in home prices.

Canadian government bond yields eased across the curve, tracking moves in U.S. Treasuries. The 10-year fell 3.5 basis points to 3.151%.

(Reporting by Fergal Smith; Editing by Will Dunham)