TORONTO: The Canadian dollar strengthened against its US counterpart on Monday as stock markets steadied and oil prices rose, with the currency clawing back some its decline from last week when the Federal Reserve turned more hawkish.

The Canadian dollar was trading 0.5% higher at 1.2395 to the greenback, or 80.68 US cents, after earlier touching its weakest level since April 26 at 1.2486. It fell 2.4% last week, its biggest decline since March last year.

Canada is a major exporter of commodities, including oil and copper, which have benefited from Fed stimulus. Last Wednesday, guidance from the US central bank showed it could raise interest rates in 2023, sooner than its previous forecast of 2024.

Copper hit its lowest level since mid-April after moves by China to rein in commodities price rallies and the Fed's hawkish signal, but global shares recovered from a four-week low and US crude prices were up 0.5% to $71.99 a barrel.

With fiscal spending booming and households flush with cash, investors are betting that the Bank of Canada's next tightening cycle, expected to begin in 2022, will result in interest rates climbing above the previous peak for the first time in decades.

Canadian government bond yields were higher across a steeper curve, with the 10-year up 4.6 basis points at 1.410%.

The gap between 2- and 10-year rates widened by 4.2 basis points to 95.6 basis points in favor of the longer-dated bond, after hitting on Friday the smallest spread in four months.