C$ posts 3rd straight weekly gain, supported by 'risk-on vibe'

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Friday as investors embraced risk and awaited both a federal budget and a Bank of Canada interest rate decision next week.

The loonie was trading 0.3% higher at 1.2501 to the greenback, or 79.99 U.S. cents. It was up 0.2% for the week, adding to modest gains in the prior two weeks.

Buyers of U.S. dollars gave up overnight "as the risk-on vibe continues higher," said Erik Bregar, head of FX strategy at Exchange Bank of Canada. "It's hard to fight the bearish U.S., bullish CAD trend technically and fundamentally."

Wall Street climbed to record highs and the U.S. dollar fell to a 4-week low against a basket of currencies, as investors increasingly bought into the Federal Reserve's dovish policy stance.

Still, the loonie stuck within a recent narrow range, with data from the U.S. Commodity Futures Trading Commission showing that speculators have cut their bullish bets on the currency to the lowest since December. "Traders have been hesitant to chase the CAD higher ahead of next week's federal budget release," said Tony Valente, senior FX dealer at AscendantFX.

Canada's Liberal government will deliver on its promise to spend big when it presents its first budget in two years on Monday amid a fast-rising third wave of COVID-19 infections and ahead of an election expected in coming months.

A Bank of Canada interest rate decision is also due next week, with strategists expecting the central bank to cut bond purchases.

Canadian wholesale trade fell 0.7% in February from January, data from Statistics Canada showed, while the price of oil, one of Canada's major exports, settled 0.5% lower at $63.13 a barrel.

Canada's 10-year rose 5.2 basis points to 1.537%, having rebounded from a five-week low on Thursday at 1.434%.

(Reporting by Fergal Smith; editing by Jonathan Oatis and Alistair Bell)