Canadian dollar strengthens as oil rebounds; bearish bets hit record

TORONTO (Reuters) - The Canadian dollar strengthened on Friday against its U.S. counterpart, adding to this week’s gains as oil recovered some lost ground, while data showed that bearish bets on the loonie rose to a fresh record high.

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/File Photo

U.S. crude CLc1 prices settled 90 cents higher at $49.80 a barrel. They had plunged on Thursday following an Organization of the Petroleum Exporting Countries-led decision to extend current production curbs that investors gauged did not go far enough to reduce a global supply glut. [O/R]

“It’s all about oil,” said Michael Goshko, Corporate Risk Manager at Western Union Business Solutions.

Oil is one of Canada’s major exports.

Speculators increased net short positions in the Canadian dollar to 99,109 contracts as of May 23 from 98,000 a week earlier, data from the Commodity Futures Trading Commission and Reuters calculations showed.

Those investors who had been selling the loonie “got squeezed big time,” Goshko said.

The currency got a boost on Wednesday when the Bank of Canada was more upbeat than investors had expected as it left interest rates unchanged at 0.5 percent.

At 4 p.m. EDT (2000 GMT), the Canadian dollar CAD=D4 was trading at C$1.3460 to the greenback, or 74.29 U.S. cents, up 0.2 percent. For the week, it rose 0.4 percent.

The loonie has recovered from a 14-month low plumbed this month at C$1.3793. On Thursday, it touched its strongest in five weeks at C$1.3388.

Gains for the loonie came even as the U.S. dollar .DXY climbed against a basket of major currencies. Data showed that U.S. economic growth slowed less sharply in the first quarter than initially thought. [nLNNQGEDFD]

Canada's gross domestic product data for the first quarter is due next week. Economists forecast that the economy grew at a 3.6 percent annualized pace after a strong expansion in the second half of 2016. ECONCA

Still, Canada sends 75 percent of its exports to the United States and could suffer badly from a renegotiation of the North American Free Trade Agreement or implementation of a proposed U.S. border adjustment tax.

Some customers say they are seeing reduced spending by American companies due to trade uncertainty, Goshko said.

Canadian government bond prices were higher across a flatter yield curve, with the 10-year CA10YT=RR rising 21 Canadian cents to yield 1.439 percent.

The gap between the 2- and 10-year yields narrowed by 1.8 basis points to a spread of 72.6 basis points, its narrowest since Nov. 8.

Reporting by Fergal Smith; Editing by W Simon and James Dalgleish