TORONTO: The Canadian dollar was stronger against the greenback on Monday as oil prices rallied for a third straight session and helped give the commodities-linked currency a lift.
After retreating against the US dollar on Friday on strong US jobs and wage data, the loonie was buoyed on Monday by an OPEC forecast that demand for its oil would be greater than expected this year, as well as figures that showed the number of US rigs drilling for oil fell to its lowest level since December 2011.
Canada is a major crude exporting country, and its currency has been especially sensitive to crude prices, which have plunged more than 50 percent since last June.
"If we can comfortably stay for a while above $50 (a barrel) - that's a bit of an if - but if we can, that maybe does cap the USD/CAD move to the upside, at least until the Fed begins to hike (interest rates)," said Don Mikolich, executive director of foreign exchange sales at CIBC World Markets.
"With oil finding a bit of a bottom in the $50 range, it's probably given us a little bit of support on USD/CAD. So for the week we're looking at the C$1.23 to C$1.26 range."
At 9:24 a.m. EST (1424 GMT), the Canadian dollar was at C$1.2458 to the US dollar, or 80.27 US cents, firmer than Friday's close C$1.2524, or 79.85 US cents.
Friday's robust US payrolls data has raised expectations that the Federal Reserve could make its first interest rate hike as early as mid-year. An increase would put the US central bank on a diametrically opposite path to that of the Bank of Canada, which stunned markets last month with a rate cut, and is now widely expected to cut rates again in March or April.
Mikolich said Canada-US rate spreads are favoring the United States right now, putting pressure on the loonie, and noted that 10-year spreads have touched five-year highs.
Canadian government bond prices were higher across the maturity curve, with the two-year climbing 4.5 Canadian cents to yield 0.475 percent and the benchmark 10-year rising 51 Canadian cents to yield 1.402 percent.
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