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Canadian dollar sell-off stalls as Wall Street rallies

TORONTO (Reuters) - The Canadian dollar edged higher against its broadly weaker U.S. counterpart on Monday as oil clawed back some of this month’s decline and stock markets rose globally, with the loonie finding some support after posting three straight weekly declines.

A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto, January 23, 2015. REUTERS/Mark Blinch

Wall Street surged in a broad rally as investors sought bargains among sectors hardest hit by the coronavirus recession, while the U.S. dollar .DXY pulled back from a two-month high against a basket of major currencies.

Investors are putting aside for now evidence of rising coronavirus cases, “thinking there is still the vaccine news to mitigate concerns about a second wave,” said Shaun Osborne, chief currency strategist at Scotiabank.

“But it has got to be a potential threat for risk assets going forward and that keeps the CAD a bit more defensive,” Osborne added.

Canada runs a current account deficit and is a major exporter of commodities, including oil, so the loonie tends to be sensitive to the global flow of trade and capital.

U.S. crude oil futures CLc1 rose 0.9% to settle at $40.60 a barrel, while the Canadian dollar CAD= was trading 0.1% higher at 1.3373 to the greenback, or 74.78 U.S. cents. That was a much smaller gain than for some other G10 currencies.

The loonie, which on Friday hit a seven-week low at 1.3418, traded in a range of 1.3353 to 1.3403.

Quebec, the Canadian province hit hardest by the novel coronavirus, reported another sharp increase in daily infections, and media reports said Premier Francois Legault would announce new restrictions for Montreal and the capital, Quebec City.

Canadian government bond yields were mixed across a steeper curve, with the 10-year CA10YT=RR up less than a basis point at 0.552%.

Canada’s GDP data for July is due on Wednesday, which could help guide expectations for the strength of economic recovery.

Reporting by Fergal Smith; Editing by Jonathan Oatis and Peter Cooney

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