Canadian dollar strengthens as higher oil prices support

TORONTO (Reuters) - The Canadian dollar edged higher against its U.S. counterpart on Monday as oil prices rose, but the loonie stuck to its recent sideways trading pattern ahead of a Bank of Canada interest rate decision this week.

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

At 4:00 p.m. (2100 GMT), the Canadian dollar CAD=D4 was trading 0.1% higher at 1.3043 to the greenback, or 76.67 U.S. cents. The currency, which was the top-performing G10 currency in 2019, has settled into a trading range of about 1.3030 to 1.3080 since Jan. 10.

The price of oil, one of Canada's major exports, rose to its highest in more than a week after two large crude production bases in Libya began shutting down amid a military blockade. U.S. crude oil futures CLc1 were up 0.2% at $58.66 a barrel.

“Oil is a little bit higher today and that’s helped the Canadian dollar maintain its strength,” said Darren Richardson, chief operating officer at Richardson International Currency Exchange Inc.

Still, Richardson does not expect much movement in the currency until after the Bank of Canada interest rate announcement on Wednesday, when the central bank will also update its outlook for the economy.

While the economy has slowed in recent months a revival may be under way, according to a Reuters poll of economists, who were mostly confident a rate cut was not needed and predicted monetary policy would remain unchanged this year.

The Bank of Canada has left its benchmark interest rate on hold at 1.75% since October 2018 despite easing by some other major central banks. It has pointed to housing activity as a source of resilience in the domestic economy.

The Teranet-National Bank Composite House Price Index rose 0.2% last month from November, helped by gains for some metropolitan areas in the central and eastern parts of the country, data showed on Monday.

Canada’s inflation report for December is due on Wednesday, while November retail sales data is due on Friday.

FX trading volumes were thin on Monday as Lunar New Year approaches in Asia and U.S markets closed for Martin Luther King Day.

Canadian government bond prices edged lower across the yield curve, with the two-year CA2YT=RR down 0.5 Canadian cent to yield 1.65% and the 10-year CA10YT=RR falling 4 Canadian cents to yield 1.566%.

Reporting by Fergal Smith; editing by Nick Macfie and Bill Berkrot