C$ slips from 2-1/2-month high as greenback rallies

TORONTO (Reuters) - The Canadian dollar dipped against its U.S. counterpart on Wednesday but held within reach of an earlier 2-1/2-month high as oil prices climbed and investors turned attention to U.S. and Canadian employment data scheduled for later in the week.

FILE PHOTO: U.S. and Canada Dollar notes are seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration

At 4 p.m. (2100 GMT), the Canadian dollar CAD=D4 was trading at C$1.2537 to the greenback, or 79.76 U.S. cents, down 0.2 percent.

“I think we have seen some bargain hunting in terms of the U.S. dollar today,” said Shaun Osborne, chief currency strategist at Scotiabank.

The U.S. dollar .DXY rallied on upbeat U.S. manufacturing and construction data and after minutes from the Federal Reserve's last policy meeting showed the central bank remained on track to raise interest rates several times this year.

The loonie touched its strongest intraday level since Oct. 20 at C$1.2499. It has been boosted over the past couple of weeks by firm domestic data and a 2-1/2-year high for the price of oil, one of Canada’s major exports.

U.S. crude oil futures CLc1 settled 2.1 percent higher at $61.63 a barrel, helped by a sixth day of unrest in OPEC member Iran and strong economic data from the United States and Germany.

Gains for oil could limit further pullback in the Canadian dollar ahead of the U.S. and Canadian jobs reports, Osborne said.

Canada’s employment report for December and November trade data are due on Friday, which could help guide expectations for additional Bank of Canada interest rate hikes this year.

The central bank raised its benchmark interest rate for the first time in seven years in July and then again in September, to leave it at 1 percent. Money markets expect three further rate hikes in 2018. BOCWATCH

Canadian government bond prices were higher across the yield curve, with the two-year CA2YT=RR up 4 Canadian cents to yield 1.681 percent and the 10-year CA10YT=RR rising 23 Canadian cents to yield 2.053 percent.

On Tuesday, the 10-year yield touched its highest point in more than two months at 2.093 percent.

Reporting by Fergal Smith; Editing by Bernadette Baum and Peter Cooney