TORONTO (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Monday as oil prices rose, recovering from a nearly five-month low on Friday when investors worried about potential U.S. tariffs on Mexico.
Mexico and Canada said on Friday they would proceed with plans to ratify a new continental trade pact despite a threat from U.S. President Donald Trump to impose tariffs on Mexico unless a surge of illegal immigrants ceased. Critics say that could undermine chances of the treaty coming into force.
Canada sends about 75 percent of its exports to the United States, including oil, so its economy could be hurt by a more uncertain outlook for North American trade.
The price of oil rebounded after last week’s heavy declines on reassurances over production from top oil exporter Saudi Arabia, the de-facto leader of the Organization of the Petroleum Exporting Countries. U.S. crude oil futures were up 1.9% at $54.54 a barrel.
At 9:00 a.m. (1300 GMT), the Canadian dollar was trading 0.2% higher at 1.3487 to the greenback, or 74.15 U.S. cents. The currency traded in a range of 1.3485 to 1.3526.
The loonie, which fell in May for the fourth straight month, on Friday touched its lowest since Jan. 3 at 1.3565.
Data on Friday showed that the Canadian economy barely grew in the first quarter, but signs of a strong recovery in March supported the Bank of Canada’s view that the slowdown would be temporary.
Speculators have cut their bearish bets on the Canadian dollar for the second straight week, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed on Friday. As of May 28, net short positions had fallen to 39,423 contracts from 42,236 in the prior week.
Canadian government bond prices were higher across a steeper yield curve in sympathy with U.S. Treasuries on Monday. The two-year rose 8 Canadian cents to yield 1.387% and the 10-year climbed 25 Canadian cents to yield 1.462%.
The 10-year yield fell to its lowest since June 2017 at 1.453%.
Reporting by Fergal Smith; Editing by Steve Orlofsky
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