Canadian dollar rises to nearly 4-week high, shows resilience as oil prices tumble

TORONTO (Reuters) - The Canadian dollar rose to a nearly four-week high against a weaker U.S. counterpart on Monday, as resilience seen at the end of January carried over to the new month even as crude oil prices plunged.

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

The currency CAD= has rallied more than 5 percent since hitting on Jan. 20 its weakest since 2003 at C$1.4689, helped by expectations that the Bank of Canada will not cut interest rates in the near term.

In a reversal of fortune, the U.S. dollar fell against a basket of major currencies .DXY on the view that the Federal Reserve would not be able to hike rates as quickly as forecast this year.

U.S. crude oil prices CLc1 dropped more than 6 percent, pressured by weak economic data from China, a U.S. forecast for mild weather and growing doubts that OPEC and non-OPEC producers would come together to reduce a swelling global supply glut.

“Any drop below $30 (a barrel) again and I think we’ll see that scary volatility come back into play,” said Ken Wills, currency strategist and broker at CanadianForex, in a suggestion that the Canadian dollar may not yet be out of the woods.

“I don’t think the oil oversupply story has been solved or is going away anytime soon,” he added.

The Canadian dollar CAD=D4 ended at C$1.3930 to the greenback, or 71.79 U.S. cents, stronger than Friday's official close of C$1.4006, or 71.40 U.S. cents.

The currency touched its strongest since Jan. 5 at C$1.3908, while its weakest was C$1.4062.

The Canadian manufacturing sector contracted for the sixth month in a row in January, although at a slower pace than previously.

The RBC Canadian Manufacturing Purchasing Managers’ Index, a measure of manufacturing business conditions, edged up to a seasonally adjusted 49.3 last month from 47.5 in December.

Bearish bets on the Canadian dollar rose last week to the highest in five months, Commodity Futures Trading Commision data showed on Friday, as steady Bank of Canada policy and an oil price recovery failed to shake speculation against the currency.

Canadian government bond prices were lower across the maturity curve, with the two-year CA2YT=RR price down 0.5 Canadian cent to yield 0.421 percent and the benchmark 10-year CA10YT=RR falling 7 Canadian cents to yield 1.231 percent.

The Canada-U.S. two-year bond spread was 2.6 basis points more negative at -38 basis points as recent underperformance by Canadian government bonds was pared.

Reporting by Fergal Smith; Editing by Meredith Mazzilli and James Dalgleish