* Canadian dollar rises 0.2% against the greenback * Loonie touches its strongest since May 11 at 1.3905 * Price of U.S. oil increases 2.8% * Canadian bond yields rise across a steeper curve By Fergal Smith TORONTO, May 19 (Reuters) - The Canadian dollar strengthened to a one-week high against its U.S. counterpart on Tuesday as oil prices rose and after investor sentiment was boosted the day before by news of encouraging early-stage tests of a possible COVID-19 vaccine. Canada runs a current account deficit and is a major exporter of commodities, such as oil, so the loonie tends to be sensitive to the global flow of trade and capital. "The Canadian dollar is retaining the gains on the USD made yesterday amid the general pro-risk push in the markets," strategists at Scotiabank, including Shaun Osborne, said in a note. U.S. crude oil futures climbed 2.8% to $32.70 a barrel amid signs that producers are cutting output as promised, while the U.S. dollar lost ground against a basket of major currencies as a Franco-German proposal for a coronavirus recovery fund boosted the euro. The Canadian dollar was trading 0.2% higher at 1.3905 to the greenback, or 71.92 U.S. cents, its strongest level since May 11. Canada's inflation report for April is due on Wednesday, with economists expecting the consumer price index to show an annual decline of 0.1%. Also on Wednesday, Bank of Canada Deputy Governor Timothy Lane is due to speak. Since March, the central bank has slashed interest rates to near zero and begun its first ever large-scale bond buying program. Canadian government bond yields jumped across a steeper yield curve on Tuesday, playing catch-up after the Victoria Day holiday the previous day. The 10-year yield rose 10 basis points to 0.643%. (Reporting by Fergal Smith; editing by Jonathan Oatis)
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