TORONTO: The Canadian dollar strengthened against its US counterpart on Tuesday as a decline in bond yields bolstered risk appetite, while investors awaited an interest rate decision by the Bank of Canada on Wednesday.

The safe-haven US dollar fell back from 3-1/2-month highs and US stock index futures climbed, with investors scooping up beaten-down technology stocks.

Canada runs a current account deficit and is a major exporter of commodities, including oil, so the loonie tends to be sensitive to risk appetite.

US crude oil futures consolidated recent gains, dipping 0.1% to $64.98 a barrel. On Monday, oil touched its highest since October 2018, bolstered by tighter supply due to extended OPEC+ output curbs and growing hopes of a recovery in demand.

The Canadian dollar was trading 0.3% higher at 1.2621 to the greenback, or 79.23 US cents, having traded in a range of 1.2590 to 1.2685.

Since the start of the year, the loonie has gained 0.9%, trailing just sterling and the Norwegian crown among G10 currencies.

Investors see rising chances that the Bank of Canada would hike interest rates next year as the economic outlook improves, but the central bank is likely to push back against those bets for now, pointing to still high unemployment, analysts say.

Canadian government bond yields fell across a flatter curve in sympathy with US Treasuries, with the 10-year down 6.2 basis points at 1.462%. On Monday, it touched its highest since January 2020 at 1.545%.