TORONTO: The commodity-linked Canadian dollar strengthened to a one-month high against its US counterpart on Monday as oil prices rose and sluggish US data tempered expectations of a Federal Reserve interest rate hike this year.
Oil prices rose to their highest in five weeks as speculation intensified about potential producer action to support prices in an oversupplied market. US crude settled up 2.8 percent at $45.74 a barrel.
"The bounce in oil here is maybe catching people by surprise," said Darcy Browne, managing director for foreign exchange sales at CIBC Capital Markets.
But he said the currency's gains would likely be limited given the Bank of Canada is expected to hold rates steady long after the Fed tightens US monetary policy.
"I don't think there's a big bull move here in Canada," he said.
The Canadian dollar settled at C$1.2917 to the greenback, or 77.42 US cents, stronger than Friday's close of C$1.2962, or 77.15 US cents.
It has gained in each of the last six sessions, after sharp divergence in jobs data pummeled the loonie on Aug. 5.
The currency's weakest level of the session was C$1.2975, while it touched its strongest since July 15 at C$1.2902.
CIBC's Browne said a break below C$1.29 could trigger some stop-loss trades, but that the loonie would need to strengthen to nearer C$1.26 to shift his outlook, while Canadian hedging positions above C$1.33 will keep a lid on gains.
US data on Friday that showed retail sales were unexpectedly flat in July tempered expectations of a Fed interest rate hike this year.
Speculators reduced bullish bets on the loonie for a second straight week, Commodity Futures Trading Commission data showed on Friday.
Canadian government bond prices were lower across the maturity curve in sympathy with US Treasuries. The two-year bond dipped 4.5 Canadian cents to yield 0.549 percent and the benchmark 10-year fell 37 Canadian cents to yield 1.044 percent.
The curve steepened as the spread between the 2-year and 10-year yields widened by 1.6 basis points to 49.5 basis points, indicating underperformance for longer-dated maturities. On Friday, it hit its narrowest gap since June 2008 at 47.9 basis points.
Sales of existing Canadian homes fell 1.3 percent in July from June while home prices kept rising, data from the Canadian Real Estate Association showed.
Domestic data, including retail sales for June and inflation for July, will both be released on Friday.
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