Canadian dollar gains as investors eye China reopening

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Monday as investors bet that easing of COVID-19 curbs in China would boost demand for oil, one of Canada's major exports, with the currency rebounding from a six-week low.

The loonie was up 0.3% at 1.3660 per greenback, or 73.21 U.S. cents, after trading in a range of 1.3624 to 1.3694. It touched on Friday its weakest level since Nov. 4 at 1.3705.

"The market is beginning to feel more constructive on China's reopening," said Adam Button, chief currency analyst at ForexLive.

"The next couple of months will be difficult but beyond that some oil demand is beginning to be baked in and that's going to be a tailwind for the loonie."

U.S. crude oil futures settled 1.2% higher at $75.19 a barrel as optimism over the Chinese economy outweighed concern over a global recession.

China, the world's top crude importer, is experiencing its first of three expected waves of COVID-19 cases after Beijing relaxed mobility restrictions but said it plans to step up support for the economy in 2023.

Still, speculators have raised their bearish bets on the loonie to the highest level since October 2021, data from the U.S. Commodity Futures Trading Commission showed on Friday.

As of Dec. 13, net short positions had increased to 27,248 contracts from 22,090 in the prior week.

"The big risk next year is the housing market once again for Canada," Button said. "This hawkish turn for central banks last week raises the prospect of higher rates for longer."

Canadian home prices fell 1.3% in November from the previous month, marking a faster decline than in October.

Canadian government bond yields were mixed across a steeper curve, with the 10-year climbing 8 basis points to 2.897%.

(Reporting by Fergal Smith in Toronto; Editing by Bernadette Baum and Matthew Lewis)