TORONTO (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Monday as oil fell on doubts a deal will be reached to cut output, although the currency traded in a narrow range as the market braced for trade and employment data later in the week.
The currency has consolidated recent strength since touching a 5-1/2-month high at C$1.2859 on Thursday, when stronger than expected economic growth in January further dented expectations for a Bank of Canada rate cut.
Oil prices dipped as investors ditched some of their bullish bets on another price rise and the chances that top exporters will agree to rein in overproduction appeared to fade.
"The Canadian dollar is a crude-sensitive currency and it is certainly at the mercy of rhetoric from the Saudis and whether they will potentially reach consensus on a production cut," said Dean Popplewell, chief currency strategist at OANDA, referring to a scheduled April 17 meeting between oil producers.
But while he pointed to short-term loonie weakness, he said the Canadian currency could gain in the longer term as investors further unwind bets on rate hikes at the U.S. Federal Reserve.
Fed Chair Janet Yellen said last week the central bank would proceed cautiously in raising rates, in contrast to more hawkish comments from other Fed officials. The apparent lack of unison has left investors uncertain in an environment of mixed economic data.
Canadian trade data for February is due on Tuesday, with economists watching for further strength in the export sector. The March unemployment report is due at the end of the week. ECONCA
The Canadian dollar CAD=D4 settled at C$1.3072 to the greenback, or 76.50 U.S. cents, weaker than Friday's close of C$1.3014, or 76.84 U.S. cents.
The currency's strongest level of the session was C$1.3003, while its weakest was C$1.3082.
Speculators further cut bearish bets on the Canadian dollar from extreme levels seen in January, Commodity Futures Trading Commision (CFTC) data showed on Friday.
Net short Canadian dollar positions fell to 6,180 contracts in the week ended March 29 from 15,009 in the prior week.
Canadian government bond prices were lower across the maturity curve, with the two-year CA2YT=RR price down half a Canadian cent to yield 0.547 percent and the benchmark 10-year CA10YT=RR down 7 Canadian cents to yield 1.231 percent.
Additional Reporting by Fergal Smith; Editing by Nick Zieminski and Sandra Maler