Canadian dollar firms to near nine-month high as oil jumps

By Fergal Smith TORONTO (Reuters) - The Canadian dollar strengthened to a near nine-month high against its U.S. counterpart on Tuesday as rising oil prices improved the economic outlook a day before the Bank of Canada's interest rate announcement. The currency has rebounded 15 percent since January, when it hit a 12-year low at C$1.4689, supported by a partial recovery in oil prices, the Canadian government's plan for fiscal stimulus and sharply reduced expectations for Bank of Canada rate cuts. A run of better-than-expected economic data at the start of the year has also been supportive of the loonie, including employment data on Friday. "Right now everything is working in the Canadian dollar's favor," said Blake Jespersen, managing director, foreign exchange sales at BMO Capital Markets. The currency penetrated key technical support levels, including C$1.2832, its highest since the Bank of Canada last cut interest rates in July. "We had a lot of interest from importers to hedge at those levels... the market actually took out a lot of resting orders that we had," said Jespersen. "I suspect this still has some room to run." U.S. crude prices settled at $42.17 a barrel, up 4.48 percent, after a report that top producers Russia and Saudi Arabia have agreed to freeze output ahead of a much-anticipated producers meeting on Sunday. [O/R] The Canadian dollar ended at C$1.2759 to the greenback, or 78.38 U.S. cents, much stronger than Monday's close of C$1.2899, or 77.53 U.S. The currency's weakest level of the session was C$1.2921, while it touched its strongest since July 15 last year at C$1.2750. Bank of Canada Governor Stephen Poloz is expected to talk up economic risks and play down signs of stronger growth when the central bank sets interest rates on Wednesday. Still, the implied probability of a Bank of Canada interest rate cut this year has dropped to 10 percent from more than 50 percent at the start of March. Canadian government bond prices were lower across a steeper maturity curve in sympathy with U.S. Treasuries as Wall Street rallied. The two-year price fell 5 Canadian cents to yield 0.582 percent, while the benchmark 10-year was down 48 Canadian cents to yield 1.292 percent. The 10-year yield touched its highest since March 28 at 1.304 percent. More than half of the analysts in a Reuters poll trimmed their forecasts for Canada's economic growth in 2016. (Reporting by Fergal Smith, editing by G Crosse and Dan Grebler)