Canadian dollar rebounds from one-month low ahead of Fed rate decision

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

TORONTO (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Monday, recovering from a one-month low it hit on Friday, ahead of a widely expected Federal Reserve interest rate cut this week.

The Fed is expected to cut interest rates by 25 basis points this week, for what would be the first rate cut since the financial crisis.

Earlier this month, the Bank of Canada diverged from some other major central banks, making clear it had no intention of easing monetary policy as it left its benchmark interest rate on hold at 1.75%.

At 9:26 a.m. (1326 GMT), the Canadian dollar CAD=D4 was trading 0.1% higher at 1.3150 to the greenback, or 76.05 U.S. cents. The currency on Friday touched its weakest intraday level in nearly one month at 1.3199.

Meanwhile, the price of oil, one of Canada's major exports, rose on Monday despite pessimism over U.S.-China trade talks and the prospect of slower economic growth globally that could reduce demand for crude. U.S. crude oil futures CLc1 were up 0.4% at $56.44 a barrel.

Canadian government bond prices were higher across the yield curve in sympathy with U.S. treasuries. The two-year CA2YT=RR rose 1 Canadian cent to yield 1.468% and the 10-year CA10YT=RR was up 8 Canadian cents to yield 1.457%.

The gap between Canada’s 10-year yield and its U.S. equivalent narrowed by 2.5 basis points to a spread of 59 basis points in favor of the U.S. bond. On Friday, it touched its widest gap in nearly five weeks at 61.5 basis points.

Reporting by Levent Uslu; editing by Jonathan Oatis