TORONTO: The Canadian dollar edged higher against its US counterpart on Wednesday as oil prices and stocks rose, while the market braced for an impending interest rate announcement by the Bank of Canada.
Oil rose towards $50 a barrel for the first time in seven months after industry data showed a sharp fall in US inventories. US crude prices were up 1.25 percent at $49.23 a barrel.
Adding to support for risk-sensitive commodity-linked currencies such as the Canadian dollar, stocks climbed as risk eased that Britain or Greece would leave the European Union, while German business morale improved more than expected in May.
At 9:15 a.m. EDT (1315 GMT), the Canadian dollar was trading at C$1.3123 to the greenback, or 76.20 US cents, stronger than Tuesday's official close of C$1.3146, or 76.07 US cents.
The currency's strongest level of the session was C$1.3087, while its weakest was C$1.3133.
Still, the loonie has fallen 5 percent from its 10-month high of C$1.2461 on May 3, pressured by speculation that the US Federal Reserve will raise interest rates as early as next month, as well as a weaker outlook for Canada's economy following a strong start to 2016.
Canada's central bank is widely expected to hold interest rates at 0.50 percent but strike a more dovish tone due partly to a massive wildfire in Alberta that has disrupted oil production. The rate decision is due at 10:00 a.m. EDT (1400 GMT).
Production cuts in Alberta's oil sands forced by the raging wildfire may cause Canadian growth to stall in the second quarter, economists have warned.
Overnight index swaps implied just a 6 percent chance of a rate cut this year, much less than the 40 percent chance implied two weeks ago.
Canadian government bond prices were mixed across the maturity curve, with the two-year price flat to yield 0.629 percent and the benchmark 10-year falling 1 Canadian cent to yield 1.366 percent.
The Canada-US two-year bond spread was 0.7 of a basis point more negative at -30.3 basis points, its largest gap since March 28, while the 30-year spread was 1.3 basis points more negative at -50.7 basis points as Canadian government bonds outperformed.
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