C$ edges higher against U.S. dollar as oil prices steady

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

(Reuters) - The Canadian dollar rose to a four-day high against a broadly softer U.S. dollar on Monday, as oil prices increased modestly after shaking off worries that rising coronavirus cases would put a curb on the demand for fuel.

The Canadian dollar CAD= was at C$1.3537 to the greenback, or 73.87 U.S. cents, stronger than Friday's close of C$1.3578, or 73.65 U.S. cents. The loonie was at its strongest against the greenback since Thursday.

The price of oil, one of Canada’s major exports, overcame early weakness to edge higher as a flurry of announcements about a potential COVID-19 vaccine and ongoing talks over a European Union fund to revive economies hit by the pandemic assuaged concerns about a hit to demand for crude.

“The move lower (for the U.S. dollar) came as oil prices recovered, and as risk-taking levels improved,” said Ronald Simpson, managing director of global currency analysis at Action Economics.

The U.S. dollar fell to its lowest level in more than four months against the euro, as hopes that the European Union would agree on a recovery fund for economies in the region hit by the COVID-19 pandemic lifted the common currency.

The loonie has been in a narrow range against the greenback for the past seven weeks, bouncing between C$1.3717 and C$1.3313.

“The CAD’s correlation with risk is weakening but remains elevated while its correlation with crude is picking up, suggesting perhaps that the market’s focus is switching to more domestically-relevant drivers,” Shaun Osborne, chief FX strategist at Scotiabank, said in a note.

Canadian government bond prices rose across the maturity curve, with the two-year CA2YT=RR yield at 0.270%, down from 0.272% late on Friday, while the benchmark Canadian 10-year CA10YT=RR yield fell to 0.516% from Friday's 0.525%.

Reporting by Saqib Iqbal Ahmed; Editing by Jonathan Oatis and Peter Cooney