C$ strengthens to 10-day high as risk tolerance rises

TORONTO (Reuters) - The risk-sensitive Canadian dollar strengthened to a 10-day high against its U.S. counterpart on Monday as investors grew more comfortable with Brexit, while soft domestic data was insufficient to raise prospects of a Bank of Canada rate cut.

A Canadian dollar coin, commonly called a "Loonie" and an American dollar bill are seen in this staged photo in Toronto, March 17, 2010. REUTERS/Mark Blinch

Gains for the loonie came as U.S. markets were closed for the July 4 public holiday.

“The market still seems to be coming to terms with the idea that the U.K. referendum is a U.K. or European event, rather than a global event, and all things risky are going up as a result,” said Adam Cole, global head of FX strategy at RBC Capital Markets.

Expectation that the U.S. Federal Reserve will hold off from further rate hikes and that central banks in other parts of the world will ease monetary policy has aided a quick recovery in risk appetite, Cole said.

Domestic data continued to signal that Canada’s economy is struggling to gain momentum.

The RBC Canadian Manufacturing Purchasing Managers’ index (PMI) dipped to a seasonally adjusted 51.8 last month from 52.1 in May.

Canadian business sentiment remained subdued in the second quarter, the Bank of Canada’s quarterly Business Outlook Survey showed.

However, the implied probability of a Bank of Canada rate cut this year dipped to 25 percent from a one-third-chance a week ago, overnight index swaps showed. [BOCWATCH]

The Canadian dollar CAD=D4 ended at C$1.2856 to the greenback, or 77.78 U.S. cents, stronger than Thursday's official close of C$1.2917, or 77.42 U.S. cents and Friday's close of C$1.2911, according to Thomson Reuters data.

The currency’s weakest level of the session was C$1.2923, while it touched its strongest since June 24 at C$1.2832.

U.S. crude oil futures CLc1 fell 0.5 percent to $48.76 after comments by Saudi Energy Minister Khaled Al-Faleh that the market was heading toward balance were offset by signs of slowing demand in Asia. [O/R]

Speculators increased bullish bets on the loonie for the first time in four weeks, Commodity Futures Trading Commission data showed on Friday.

Canadian government bond prices were mixed across a flatter maturity curve. The two-year CA2YT=RR price was flat to yield 0.517 percent and the benchmark 10-year CA10YT=RR climbed 15 Canadian cents to yield 1.044 percent.

The 10-year yield touched its lowest since Feb. 12 at 1.031 percent, while the 30-year yield hit set a record low at 1.668 percent.

Reporting by Fergal Smith; Editing by Bernard Orr and Dan Grebler