TORONTO: The Canadian dollar made small gains against its US counterpart on Monday as oil rallied to a six-month high and as Canadian home sales rose in April to their highest level ever.
The commodity-linked currency had a subdued reaction to oil prices rising amid increasing output disruptions in Nigeria and after Goldman Sachs said a near-two-year glut in the market had ended and flipped to a deficit.
"The question over this week is will the Canadian dollar play catch-up to oil or will the trend continue in favor of the US data and the US dollar," said Blake Jespersen, managing director for foreign exchange sales at BMO Capital Markets.
He said the currency pair could move on Canadian and US inflation data this week and Wednesday's release of minutes from the US Federal Reserve's policy-setting committee. The US-Canada dollar pair has recently traded in a C$1.28-C$1.30 range after the loonie got to as strong as C$1.2461 in early May.
Domestic manufacturing, wholesale trade and retail sales data for March is also due this week.
The Canadian dollar ended the session trading at C$1.2896 to the greenback, or 77.54 US cents, stronger than Friday's close of C$1.2935, or 77.31 US cents.
Jespersen said the pair will likely breach resistance at C$1.30 to hit C$1.32 in the near-term as the Alberta wildfire hits May GDP data and especially if the Fed's minutes show a willingness to hike earlier rather than later.
The Canadian currency should improve over a six-to-nine-month timeframe as oil prices rise further and the Bank of Canada gets closer to hiking its interest rate, he said.
Sales of existing Canadian homes rose in April from March, even as activity in the two largest markets, Toronto and Vancouver, appears to have peaked, a report from the Canadian Real Estate Association showed.
Meanwhile, speculators have increased bullish bets on the loonie, Commodity Futures Trading Commission data showed.
Canadian government bond prices were lower across the maturity curve, with the two-year price down 3 Canadian cents to yield 0.567 percent and the benchmark 10-year declining 33 Canadian cents to yield 1.311 percent.
The 10-year yield on Friday hit its lowest point in more than three weeks at 1.265 percent.
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