Canadian dollar firms with oil but worries linger on domestic outlook

FILE PHOTO: U.S. dollar banknote is seen in this picture illustration taken May 3, 2018. REUTERS/Dado Ruvic/Illustration

TORONTO (Reuters) - The Canadian dollar edged higher against its U.S. counterpart on Monday as oil prices rose, but gains for the loonie were checked by worries about the outlook for Canada’s economy despite data on Friday showing a bumper jobs gain in February.

Friday’s employment data revealed the third month of outsized job gains in the last four. Still, Canada’s economy barely grew in the fourth quarter and last week the Bank of Canada turned more dovish on the outlook for interest rates.

“The market is still looking at the (economic) data and is fearful of signs of further weakness.” said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets. “(Oil) at the very least, it’s one of the few things that hasn’t added to the pessimism”

The price of oil, one of Canada’s exports, was lifted on Monday by comments by Saudi Energy Minister Khalid al-Falih that an end to OPEC-led supply cuts was unlikely before June. U.S. crude oil futures settled 1.3 percent higher at $56.79 a barrel.

At 2:49 p.m. (1849 GMT), the Canadian dollar was trading 0.1 percent higher at 1.3404 to the greenback, or 74.60 U.S. cents. The currency, which on Thursday touched its weakest intraday level in more than two months at 1.3467, traded in a range of 1.3395 to 1.3440.

The modest gain for the loonie came as U.S. data showed retail sales unexpectedly rose in January but receipts in December were much weaker than initially thought.

Canadian government bond prices were mixed across a flatter yield curve, with the two-year down 0.5 Canadian cent to yield 1.656 percent and the 10-year rising 6 Canadian cents to yield 1.758 percent.

The gap between Canada’s 10-year yield and its U.S. equivalent widened by 2.5 basis points to a spread of 88.5 basis points in favor of the U.S. bond, its widest since December 2015.

Reporting by Fergal SmithD; editing by Jonathan Oatis