C$ strengthens to 10-day high as oil recovers

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar strengthened to a 10-day high against its U.S. counterpart on Friday as oil rose and a new property transfer tax in Vancouver loomed, while data showing the U.S. economy grew far less than expected offset weak domestic data.

Oil prices recovered after a week-long selloff but still finished the month nearly 15 percent lower. U.S. crude oil futures settled up 46 cents at $41.60 a barrel.

"Flows due to the impending Vancouver real estate tax" added to support for the Canadian dollar, said Adam Button, currency analyst at ForexLive.

British Columbia has introduced a new 15-percent property transfer tax on foreign real estate buyers in Vancouver, one of a series of new measures geared at increasing affordability in the city's red-hot housing market. The new tax takes effect on Aug. 2.

Canada's economy suffered its biggest one-month contraction in May since March 2009 as wildfires in northern Alberta caused a sharp drop in oil extraction, reinforcing expectations that the economy shrank in the second quarter.

Still, resumption of oil production should help the economy rebound "strongly" in the third quarter said Paul Ferley, assistant chief economist at Royal Bank of Canada.

The U.S. dollar (.DXY) fell against a basket of major currencies after a round of modest monetary policy easing from the Bank of Japan disappointed investors. This was followed by the weaker-than-expected U.S. gross domestic product data.

The Canadian dollar ended at C$1.3056 to the greenback, or 76.59 U.S. cents, stronger than Thursday's close of C$1.3161, or 75.98 U.S. cents.

The currency's weakest level of the session was C$1.3185, while it touched its strongest since July 19 at C$1.3002.

The loonie declined 1 percent for the month of July.

Speculators increased bullish bets on the Canadian dollar for the fifth straight week, Commodity Futures Trading Commission data showed. Net long Canadian dollar positions rose to 23,180 contracts in the week ended July 26 from 22,068 contracts in the prior week.

Canadian government bond prices were higher across the maturity curve in sympathy with U.S. Treasuries.

The two-year bond rose 9 Canadian cents to yield 0.54 percent and the benchmark 10-year climbed 39 Canadian cents to yield 1.028 percent.

The 10-year yield hit its lowest since July 14 at 1.023 percent.

(Reporting by Fergal Smith; Editing by Jeffrey Hodgson and Sandra Maler)