Canadian dollar pares weekly decline as trade optimism boosts oil prices

TORONTO (Reuters) - The Canadian dollar edged higher against its U.S. counterpart on Friday, reducing this week’s decline as investors grew more optimistic on prospects for a trade deal between the United States and China and on the outlook for economic growth.

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

Canada exports many commodities, including oil, so its economy could benefit from improved global growth prospects.

U.S. stocks climbed and oil prices rose as signs emerged of progress in U.S.-China trade talks, while an upbeat U.S. jobs report and data on Chinese manufacturing lessened concerns about slowing global growth.

U.S. crude oil futures CLc1 settled 3.7% higher at $56.20 a barrel.

“We think USD-CAD could be on the brink of moving into a new range below 1.30,” said Daniel Katzive, head of FX strategy, North America at BNP Paribas in New York. “Even though the Bank of Canada tried to lean on the dovish side this week, the bottom line is that they’ve been on hold and the rest of the G10 has eased policy.”

Canadian manufacturing activity expanded in October for the second consecutive month as new orders climbed, which could temper concern at the Bank of Canada about the potential for global trade conflicts to derail the domestic economy.

On Wednesday, the Bank of Canada said that the country’s economy will be “increasingly tested” by trade uncertainty as it left its benchmark interest rate on hold at 1.75%.

Still, Federal Reserve easing since July has lowered the range for its policy rate to below the Bank of Canada’s equivalent for the first time since December 2016.

At 4:07 p.m. (2007 GMT), the Canadian dollar CAD=D4 was trading 0.1% higher at 1.3144 to the greenback, or 76.08 U.S. cents. The currency, which was down 0.6% for the week, traded in a range of 1.3140 to 1.3196.

Investors have raised bullish bets on the loonie to the highest level since December 2017, according to data from the U.S. Commodity Futures Trading Commission and Reuters calculations. As of Oct. 29, net long positions in the currency had climbed to 43,589 contracts from 33,393 in the prior week.

Canadian government bond prices were lower across the yield curve in sympathy with U.S. Treasuries. The two-year CA2YT=RR fell 7 Canadian cents to yield 1.552% and the 10-year CA10YT=RR was down 34 Canadian cents to yield 1.448%.

On Thursday, the 10-year yield hit a near three-week low intraday at 1.399%.

Reporting by Fergal Smith; Editing by Daniel Wallis