C$ edges higher as oil builds on recent rally

TORONTO (Reuters) - The Canadian dollar edged higher against its U.S. counterpart on Monday after sharp gains the previous week, as oil rose and domestic attention shifted to an interest rate decision by the Bank of Canada.

A man holds Canadian currency in this posed photograph in Toronto, October 22, 2008. REUTERS/Mark Blinch

The loonie advanced 1.8 percent last week, its biggest gain in eight months, helped by stronger-than-expected domestic data and an agreement by members of the Organization of the Petroleum Exporting Countries to cut output.

Oil, one of Canada's major exports, extended its gains since the production cut deal was struck. U.S. crude CLc1 prices were up 0.87 percent at $52.13 a barrel.

The U.S. dollar .DXY weakened against a basket of major currencies as bets that a snap election in Italy would not be triggered supported the euro.

The Bank of Canada is widely expected to hold interest rates at 0.50 percent on Wednesday, but investors will look to the policy statement for any mention of what impact the U.S. election of Donald Trump could have on the Canadian and U.S. economies.

At 9:34 a.m. EST (1434 GMT), the Canadian dollar CAD=D4 was trading at C$1.3273 to the greenback, or 75.34 U.S. cents, slightly stronger than Friday's close of C$1.3283, or 75.28 U.S. cents.

The currency’s weakest level of the session was C$1.3356, while its strongest was C$1.3269. On Friday, it touched its strongest since Oct. 21 at C$1.3254.

Speculators increased bearish bets on the Canadian dollar, according to Commodity Futures Trading Commission data on Friday. Net short Canadian dollar positions rose to 18,576 contracts in the week ended Nov. 29 from 17,462 in the prior week.

The Liberal government’s new mortgage rules are likely to sober up Canada’s housing market over the coming year, a Reuters poll showed, but record-low borrowing costs should bolster demand.

Canadian government bond prices were lower across a steeper yield curve, with the two-year CA2YT=RR down 3.5 Canadian cents to yield 0.752 percent and the benchmark 10-year CA10YT=RR falling 36 Canadian cents to yield 1.66 percent.

On Thursday, the 10-year yield touched its highest in more than one year at 1.712 percent.

Canada's trade data for October is due on Tuesday. Better-than-expected figures for exports could bolster expectations that economic growth in the final quarter of the year will not slow by as much as had been anticipated. ECONCA

Reporting by Fergal Smith; Editing by Nick Zieminski