C$ dips as oil falls, greenback rises; further strength seen ahead

TORONTO (Reuters) - The Canadian dollar softened against the U.S. dollar on Thursday, paring some of this week’s gains as lower oil prices and broader strength in the greenback offset stronger-than-expected domestic manufacturing data.

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

Canadian manufacturing sales topped forecasts and hit a record in April as sales of petroleum and coal products rebounded after two months of declines, data from Statistics Canada showed.

At 4:00 p.m. ET (2000 GMT), the Canadian dollar CAD=D4 was trading at C$1.3279 to the greenback, or 75.31 U.S. cents, down 0.2 percent.

The currency traded in a range of C$1.3226 to C$1.3308.

Oil prices touched six-month lows, under pressure from high global inventories and doubts about OPEC's ability to reduce the glut. U.S. crude CLc1 prices were down 0.72 percent to $44.41 a barrel.

Shaun Osborne, chief currency strategist at Scotiabank said the summer driving season usually means an increase in demand and tighter supply, but inventory data suggests significant excess glut.

The U.S. dollar .DXY rose against a basket of major currencies, supported by the Federal Reserve's decision on Wednesday to boost interest rates further.

On Wednesday, the loonie touched its strongest in 3-1/2 months at C$1.3165. It has gained 1.5 percent this week, helped by signals from the Bank of Canada that higher interest rates lie ahead.

“That will be quite significant for Canadian dollar going forward,” said Osborne, adding the currency could potentially trade below C$1.30 in the coming months.

“Because it won’t be just one rate increase, it will be more than one, and we barely have one rate increase factored in for Canada over the next 12 months at this point.”

Chances of a rate hike this year have surged to more than 90 percent from less than one-in-four before stronger-than-expected jobs data on Friday.

The central bank, which had long said interest rates are too blunt a tool to tackle the country’s housing market, may have finally decided to act and at least limit its role in fueling a potential bubble with low interest rates.

Resales of Canadian homes dropped 6.2 percent in May from April, while Toronto sales plunged 25.3 percent as new housing policy changes sideswiped demand and new listings rose again, the Canadian Real Estate Association said.

Canadian government bond prices were lower across the yield curve, with the two-year CA2YT=RR price down 7.5 Canadian cents to yield 0.918 percent and the benchmark 10-year CA10YT=RR falling 38 Canadian cents to yield 1.533 percent.

Reporting by Solarina Ho; Additional reporting by Fergal Smith; Editing by Bernadette Baum and David Gregorio