Canadian dollar rebounds from six-week ahead of potential further fiscal support

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

TORONTO (Reuters) - The Canadian dollar was little changed against its U.S. counterpart on Tuesday, but outperformed all the other G10 currencies as oil rebounded and investors weighed prospects of additional spending from Canada’s government.

The price of oil, one of Canada's major exports, rallied after a steep decline the day before, as analysts took the view that renewed lockdown restrictions would have only a limited impact on fuel demand. U.S. crude CLc1 oil futures settled 0.7% higher at $39.60 a barrel.

“We’ve seen the Canadian dollar track oil prices especially closely over the last few days, and the stabilization in crude today seems to be helping the loonie,” said Erik Nelson, a currency strategist at Wells Fargo.

Hopes for more fiscal stimulus may also be supporting the currency, Nelson said.

Canadian Prime Minister Justin Trudeau is scheduled to unveil on Wednesday what he says is a far-reaching plan to help Canada recover from the pandemic.

Further government spending could reduce the economy’s dependence on low interest rates. But economists say that Bank of Canada Governor Tiff Macklem is likely signing up for inflation running above target, as he seeks an economic recovery that raises prospects for everyone.

The Canadian dollar CAD= was trading nearly unchanged at 1.3305 to the greenback, or 75.16 U.S. cents, having touched its weakest intraday level since Aug. 12 at 1.3345.

The U.S. dollar rose to an eight-week high against a basket of major currencies, after a top Fed official struck a hawkish tone and said further quantitative easing may not provide additional lift to the U.S. economy.

Canadian government bond yields were little changed across the yield curve, with the 10-year CA10YT=RR trading at 0.556%.

Reporting by Fergal Smith; Editing by Paul Simao and Jonathan Oatis