Canadian dollar edges higher as oil prices climb

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Tuesday as oil prices rose and despite domestic data that showed factory activity slowing further in June.

The loonie was up 0.2% at 1.3225 to the greenback, or 75.61 U.S. cents, in subdued trading with U.S. financial markets closed for the July 4 public holiday.

The currency traded in a range of 1.3204 to 1.3256, extending the sideways pattern of recent days. It notched a 2.5% gain in June.

Speculators have slashed their bearish bets on the Canadian dollar, data from the U.S. Commodity Futures Trading Commission showed on Friday. As of June 27, net short positions had decreased to 2,847 contracts from 33,543 in the prior week.

The price of oil, one of Canada's major exports, climbed 2% to $71.16 a barrel as markets weighed August supply cuts by top exporters Saudi Arabia and Russia against a weak global economic outlook.

Contraction in Canada's manufacturing sector deepened slightly in June as an uncertain economic outlook weighed on both domestic and foreign demand. The S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) dipped to a seasonally adjusted 48.8 in June from 49.0 in May.

Canada's employment report for June is due for release on Friday. The data could help guide expectations for next week's interest rate decision by the Bank of Canada.

Money markets see a 57% chance that the BoC will raise its benchmark interest rate by a further 25 basis points, after it hiked in June to a 22-year high of 4.75%.

Canadian government bond yields were higher across the curve, with the 10-year up 6.4 basis points at 3.335%.

(Reporting by Fergal Smith; Editing by Josie Kao)