January 26, 2016 / 2:52 PM / 2 years ago

C$ strengthens as crude oil prices rise on deal hopes

TORONTO (Reuters) - The Canadian dollar rallied against its U.S. counterpart on Tuesday, helped by a recovery in oil prices on hopes of a deal to address a global crude supply glut.

The new Canadian five and 10 dollar bills, made of polymer, are displayed with the previously released 20, 50 and 100 dollar notes following an unveiling ceremony at the Bank of Canada in Ottawa April 30, 2013. REUTERS/Chris Wattie

A 6 percent slump in Chinese shares weighed on market sentiment, but was offset by firmer oil prices.

Oil rose further above $30 a barrel, lifted by hopes that OPEC and non-OPEC producers may be edging closer to a deal to tackle one of the biggest supply gluts in decades.

U.S. Federal Reserve policymakers meet on Tuesday and Wednesday for the first time since raising interest rates in December. While no move is expected, investors will parse their statement to see how recent events have influenced the central bank’s outlook.

At 9:10 a.m. EST, the Canadian dollar CAD=D4 was trading at C$1.4138 to the greenback, or 70.73 U.S. cents, stronger than Monday’s official close of C$1.4270, or 70.08 U.S. cents.

The currency’s strongest level of the session was C$1.4137, while its weakest level was C$1.4326.

The currency rallied 3 percent last week after the Bank of Canada surprised many traders by leaving its policy rate on hold. On Friday, it touched its strongest level since Jan. 11 at 1.4115.

Canadian government bond prices were lower across the maturity curve as the rise in crude oil prices supported the domestic economic outlook.

The two-year CA2YT=RR price was down 2.5 Canadian cents to yield 0.42 percent and the benchmark 10-year CA10YT=RR fell 12 Canadian cents to yield 1.257 percent.

The Canada-U.S. 10-year bond spread was 2.4 basis points less negative at -75.3 basis points as Canadian government bonds underperformed.

Canadian gross domestic product for November is awaited on Friday, expected to reveal a rebound in growth after contraction in October. ECONCA

Reporting by Fergal Smith; Editing by Meredith Mazzilli

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