Canadian dollar nudges higher as risk appetite perks up

TORONTO (Reuters) - The Canadian dollar edged higher against its U.S. counterpart on Monday as risk appetite improved and Bank of Canada Governor Stephen Poloz signaled optimism on the economy.

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

At 4 p.m. (2000 GMT), the Canadian dollar CAD= was trading 0.1 percent higher at C$1.2932 to the greenback, or 77.33 U.S. cents. The currency, which rose 0.2 percent last week, traded in a range of C$1.2896 to C$1.2964.

“It seems like there is a little bit of risk-on sentiment today which has favored USD-CAD moving lower,” said Amok Shasta, director at Clarity FX in San Francisco.

World stock indexes and Treasury yields climbed, while the dollar fell to a two-week low as political tensions in Europe eased.

Canada’s commodity-linked currency tends to track movement in stocks because of the signal that equity markets send about prospects for growth.

“This week again is all going to be focused on the political aspects around trade relationships,” Shasta said.

Prime Minister Justin Trudeau plays host this week to a summit of the Group of Seven leading industrialized nations, with six of the seven members angry at the United States over a slew of recent moves by President Donald Trump.

Canada has vowed to do all it can to protect its steel and aluminum sectors from U.S. tariffs but sidestepped an industry call to strike back quickly, saying it needed time to study the issue.

The uncertainty over rising trade tensions and escalating retaliation in response to U.S. import tariffs means the Bank of Canada will be data-dependent as it sets monetary policy, Poloz, the central bank governor, said on Saturday.

“He sounded surprised about the tariffs but the message was still one of optimism on the economy,” said Adam Button, currency analyst at Forex Live.

Chances of an interest rate hike in July have climbed to 63 percent. They stood at less than 50 percent before a Bank of Canada policy statement last week that was more hawkish than the market had expected. DOGWATCH

The price of oil, one of Canada’s major exports, fell to its lowest level in nearly two months, pressured by growing U.S. production, possible global supply growth and nagging trade tensions. [O/R]

U.S. crude oil futures CLc1 settled 1.6 percent lower at $64.75 a barrel.

Canadian government bond prices were lower across the yield curve in sympathy with U.S. Treasuries. The 10-year CA10YT=RJR declined 25 Canadian cents to yield 2.276 percent.

Reporting by Fergal Smith; Editing by Alistair Bell and Peter Cooney