Canadian dollar strengthens as oil climbs to near three-month high

TORONTO (Reuters) - The Canadian dollar strengthened slightly against a firmer U.S. counterpart on Monday as oil rose to its highest intraday level in nearly three months.

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

U.S. crude CLc1 prices settled up 57 cents at $48.81 a barrel as Iran exhorted the need for other oil producers to join the Organization of Petroleum Exporting Countries in supporting the market. [O/R]

Modest gains for the loonie followed data on Friday that showed Canada’s economy got off to a stronger-than-expected start in the third quarter.

The data has reduced pressure on the Bank of Canada to cut interest rates in the near term, said Mazen Issa, senior foreign exchange strategist at TD Securities.

The central bank would prefer that the U.S. Federal Reserve do the “heavy lifting” by raising interest rates before the end of the year, Issa added.

The U.S. dollar .DXY rose against a basket of major currencies as U.S. factories ramped up activity in September.

The Canadian dollar CAD=D4 ended at C$1.3110 to the greenback, or 76.28 U.S. cents, slightly stronger than Friday's close of C$1.3117, or 76.24 U.S. cents.

The currency’s strongest level of the session was C$1.3068, while its weakest was C$1.3144.

Canada will close a tax loophole and introduce a stress test for insured mortgage lending to boost the stability of the housing sector, the government said, its latest move to cool a market that some have called a bubble.

Still, measures to mitigate risks to the financial system from the housing market are unlikely to steer the Bank of Canada toward an interest rate cut, Issa said.

Speculators have turned bearish on the Canadian dollar, Commodity Futures Trading Commission data showed on Friday. Net short Canadian dollar positions stood at 11,615 contracts in the week ended Sept. 27, having swung from net long 16,303 contracts in the prior week.

Canadian government bond prices were lower across the yield curve in sympathy with U.S. Treasuries. The two-year CA2YT=RR fell 2.5 Canadian cents to yield 0.536 percent and the benchmark 10-year CA10YT=RR declined 12 Canadian cents to yield 1.010 percent.

The 2-year yield fell 1.8 basis points further below its U.S. equivalent to leave the spread at -26.2 basis points, the largest gap since June 8.

Canada's international merchandise trade report for August is due on Wednesday. Investors will be looking to see if exports were as strong as in the previous month. The September employment report is due on Friday. ECONCA

Editing by Lisa Von Ahn and Steve Orlofsky