Canadian dollar strengthens as crude oil prices surge

TORONTO (Reuters) - The Canadian dollar rose against its U.S. counterpart on Friday as a surge in oil prices supported the risk-sensitive commodity currency, even as solid U.S. retail sales data helped drive broader gains for the greenback.

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

Relative calm returned to world markets after a week of turmoil that triggered a dash to safe-haven assets and currencies.

Feeding risk appetite, oil prices CLc1 surged as much as 12 percent on renewed talk of production cuts.

The rally in the Canadian dollar is “a function of what oil prices have done today,” said David Tulk, chief Canada macro strategist at TD Securities, who views the rebound in oil as position-driven.

U.S. consumer spending appeared to have regained its momentum in January, supporting the possibility of Federal Reserve rate hikes this year and helping the U.S. dollar .DXY advance against a basket of major currencies.

On the other hand, U.S. consumer sentiment dipped in February. It suggests the full impact of stress on economic activity might not yet have been seen, said Tulk.

The Canadian dollar CAD=D4 ended at C$1.3861 to the greenback, or 72.14 U.S. cents, stronger than Thursday's official close of C$1.3921, or 71.83 U.S. cents.

The currency’s strongest level of the session was C$1.3815, while its weakest was C$1.3965. For the week, it rose 0.3 percent.

Against the safe-haven Japanese yen, the Canadian dollar firmed to 81.80 after having touched 79.27 yen on Thursday, its lowest level since Jan. 20.

Bearish bets by speculators against the Canadian dollar were trimmed slightly further after reaching five-month highs in January.

Net short Canadian dollar positions decreased to 51,935 contracts in the week ended Feb. 9 from 52,420 in the prior week, Commodity Futures Trading Commision data showed.

Canadian government bond prices were much lower across the maturity curve in a shortened session ahead of Monday's Family Day holiday. The two-year CA2YT=RR price fell 12 Canadian cents to yield 0.438 percent and the benchmark 10-year CA10YT=RR was down 105 Canadian cents to yield 1.135 percent.

On Thursday, the 10-year yield touched a record low of 0.921 percent on the flight to safety.

The curve steepened in sympathy with U.S. Treasuries. The spread between the 2-year and 10-year yields widened 5.3 basis points to 69.7 basis points as recent outperformance for longer-dated maturities was pared.

Canadian home prices edged down in January for a second month in a row, the Teranet-National Bank Composite House Price Index showed.

Reporting by Fergal Smith; Editing by Nick Zieminski and Matthew Lewis