Canadian dollar weakens ahead of Bank of Canada rate decision on Wednesday

TORONTO (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Monday, but held near three-month highs as oil prices rose and ahead of a Bank of Canada monetary policy decision on Wednesday.

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

The currency has rebounded roughly 10 percent since hitting a 12-year low in January at C$1.4689.

The rally has likely caught the Bank of Canada’s attention, according to a research note this morning from RBC Capital Markets.

An excessively quick strengthening of the currency could hinder a pick-up in exports that appears to be underway.

Data on Friday showed exports rose for a third consecutive month.

That provided “more confidence that the rotation of growth to exports from consumption and housing is taking root,” BMO Capital Markets said in a research note on Monday.

The unwinding of bearish bets by speculators has added to support for the currency.

Net short Canadian dollar positions decreased to 30,478 contracts in the week ended March 1 from 36,940 the prior week, Commodity Futures Trading Commission data showed on Friday. It reached a five-month high in January.

U.S. crude CLc1 prices were up 2.06 percent to $36.66 a barrel.

At 9:47 a.m. EST (1447 GMT), the Canadian dollar CAD=D4 was trading at C$1.3348 to the greenback, or 74.92 U.S. cents, weaker than Friday's close of C$1.3324, or 75.05 U.S. cents.

The currency’s strongest level of the session was C$1.3320, while its weakest was C$1.3377.

On Friday, it touched its strongest since Dec. 3 at C$1.3312.

The Bank of Canada is expected to hold interest rates at 0.50 percent as it waits to see what the impact of the government's expected spending measures will have on the economy. The measures will be presented at the March 22 budget. BOCWATCH

Canadian government bond prices were lower across the maturity curve, with the two-year CA2YT=RR price down 2.5 Canadian cents to yield 0.537 percent and the benchmark 10-year CA10YT=RR falling 22 Canadian cents to yield 1.275 percent.

The 10-year yield has rebounded from a record low of 0.92 percent on Feb. 11.

Reporting by Fergal Smith; Editing by Bernadette Baum