Canadian dollar edges higher as Canada's bond yields climb

TORONTO (Reuters) - The Canadian dollar edged higher on Monday against its U.S. counterpart, supported by further gains in Canada’s bond yields after the country’s central bank surprised some investors last week by raising interest rates.

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

Wednesday’s rate hike, which was the second in three months, helped drive the loonie nearly 2 percent higher last week.

Investors had expected that the Bank of Canada would wait until October to hike again after it increased rates in July for the first time in nearly seven years.

The 2-year yield, which has jumped as much as 99 basis points since mid-May, on Monday hit its highest since June 2011 at 1.643 percent.

At 10:02 a.m. ET (1402 GMT), the Canadian dollar CAD=D4 was trading at C$1.2143 to the greenback, or 82.35 U.S. cents, up 0.1 percent.

The currency traded in a range of C$1.2098 to C$1.2170. On Friday, the loonie touched its strongest since May 2015 at C$1.2063.

Gains for the loonie came even as prices of oil, one of Canada’s major exports, fell.

U.S. crude oil prices CLc1, which declined more than 3 percent on Friday, were down 0.88 percent at $47.06 a barrel on concerns that Hurricane Irma's pounding of heavily populated areas of Florida could dent demand in the top oil-consuming nation.

Speculators have increased bullish bets on the loonie, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed on Friday. Canadian dollar net long positions edged up to 53,644 contracts as of Sept. 5 from 53,167 a week earlier.

The U.S. dollar .DXY gained ground as a revival in interest in riskier assets prompted some investors to cut short bets against the greenback before U.S. inflation data this week.

U.S. stocks rose on relief that Hurricane Irma weakened and North Korea did not conduct a nuclear test over the weekend as feared.

Canadian government bond prices were lower across the yield curve as demand faded for safe-haven government bonds.

The 10-year CA10YT=RR declined 31 Canadian cents to yield 2.02 percent. The yield reached its highest intraday since July 31 at 2.042 percent.

Canadian housing starts rose unexpectedly in August, data from the Canada Mortgage and Housing Corporation showed.

Reporting by Fergal Smith; Editing by Meredith Mazzilli