C$ strengthens to set 12-week high on oil, domestic data

TORONTO (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Tuesday, setting a 12-week high as oil prices rose and after Canada’s economy grew more than expected in the fourth quarter.

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 Canadian economy slowed substantially in the quarter, but the 0.8 percent annualized increase in gross domestic product topped both economists’ and policymakers’ expectations for zero growth.

The data added “a little bit of fuel” to the currency’s rally, said BMO Capital Markets Chief Economist Doug Porter.

A 0.2 percent gain for December GDP provided a positive hand-off for the first quarter, Porter added in a research note.

Market expectations for a Bank of Canada rate cut continued to fade. The implied probability of a July cut dipped to 28 percent from 33 percent from before the data. It was at 70 percent as recently as Feb. 19.

U.S. crude CLc1 prices were up 0.30 percent at $33.85 a barrel after China's surprise monetary policy easing stoked expectations for higher oil demand from the world's largest commodities consumer and signs emerged that a global supply glut was starting to deflate.

At 10:00 a.m. EST, the Canadian dollar CAD=D4 was trading at C$1.3477 to the greenback, or 74.20 U.S. cents, stronger than Monday's official close of C$1.3531, or 73.90 U.S. cents.

The currency touched its strongest level since Dec. 7 at C$1.3456, while its weakest was C$1.3550.

Strengthening in U.S. stocks added to support for the risk-sensitive commodity currency as weak economic data globally raised hopes of a further easing of monetary policies.

Canadian government bond prices were lower across the maturity curve, with the two-year CA2YT=RR price down 3 Canadian cents to yield 0.535 percent and the benchmark 10-year CA10YT=RR falling 35 Canadian cents to yield 1.228 percent.

The spread between the 2-year and 10-year yields widened by 2.4 basis points to 69.3 basis points, indicating underperformance for longer-dated maturities.

Canadian trade data for January is awaited on Friday. ECONCA

Reporting by Fergal Smith; Editing by Lisa Von Ahn