TORONTO (Reuters) - The Canadian dollar tipped lower against the U.S. currency on Monday as easing oil prices and lower stock markets caused investors to pause for the first time after an 11-day stretch of gains.
But even as risk appetite waned, the currency held near its 20-month highs. Another day of gains was not in the cards, however, as prices for oil, a key Canadian export, dropped below $80 a barrel and monetary policy concerns mounted.
The Canadian dollar climbed in the overnight session, peaking at C$1.0165 to the U.S. dollar, or 98.38 U.S. cents, but was mainly lower for much of the North American session.
It closed at C$1.0197 to the U.S. dollar, or 98.07 U.S. cents, down from Friday's close at C$1.0183 to the U.S. dollar, or 98.20 U.S. cents.
"The trade is pretty crowded long Canada. It's not out of context to see a bit of Canadian dollar pullback," said John Curran, senior vice president at CanadianForex, a commercial foreign exchange dealing firm.
He said that even though the currency managed to break a key resistance level last week, he's not convinced the Canadian dollar is ready to move out of its recent ranges. He said a shakeup is needed, and that it could possibly stem from Friday's February Canadian inflation data.
Among upcoming economic data, the consumer price index for February is the most likely to firm up views on whether the Bank of Canada will speed up its schedule for raising interest rates.
Decisions from U.S. and Japanese central bank policy meetings this week, attempts to resolve Greece's debt woes and worries that China may further tighten its monetary policy are other factors that could affect markets as investors seek to gauge the progress of global economic recovery.
The broader outlook for the Canadian currency is positive, said Steve Butler, director of foreign exchange trading at Scotia Capital
"The fundamentals in Canada look relatively strong," he said. "When you compare us to the States, the U.K., the euro zone, the story in Canada looks better,"
These fundamentals are among reasons fueling ripening conditions for the Canadian dollar to again test parity with the greenback.
Canadian bond prices reclaimed some ground on Monday, after having largely been on the decline since investors started pricing in domestic interest rate hikes after a recent series of strong data.
The strength also mirrored moves in the bigger U.S. Treasuries market, where prices rose against a backdrop of soft stock markets and scarce buying ahead of Tuesday's Federal Reserve one-day policy meeting.
Investors widely expect the U.S. central bank to stick to the near zero percent interest policy it adopted in December 2008 to support the economic recovery, but it is uncertain about signals about its exit strategy.
The two-year government bond rose 3 Canadian cents to C$99.87 to yield 1.567 percent, while the 10-year bond was up 37 Canadian cents at C$102.01.
Canadian bonds outperformed their U.S. counterparts across the curve. The difference between 10-year yields widened 4.5 basis points to 20.8 basis points.
Reporting by Ka Yan Ng; editing by Peter Galloway