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Canadian dollar keeps most of its recent gains as oil prices rise

A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015. REUTERS/Mark Blinch (Reuters)

By Fergal Smith TORONTO (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Thursday as the greenback broadly climbed, but the loonie held on to most of its recent gains as stocks and oil prices turned higher. The price of oil, one of Canada's major exports, rose to a nearly four-week high despite fading optimism of a trade deal between the United States and China. U.S. crude oil futures settled 0.4 percent higher at $52.59 a barrel. Oil has rebounded about 24 percent since slumping in December to an 18-month low. "One thing that is going for Canada right now is oil prices, that a bit of a correlation is coming back, that with the rally in the oil market we are benefiting," said Hosen Marjaee, senior portfolio manager at Manulife Asset Management. The three-month correlation between the Canadian dollar and oil has climbed to nearly 90 percent, according to Refinitiv Eikon data, indicating that the currency and the commodity move mostly in the same direction. For some months in 2018, the correlation was negative. At 4:14 p.m. EST (2114 GMT), the Canadian dollar was trading 0.2 percent lower at 1.3235 to the greenback, or 75.56 U.S. cents. The currency traded in a range of 1.3203 to 1.3260. On Wednesday, the loonie touched a five-week low at 1.3180 as the Bank of Canada held interest rates steady, as expected, but said more increases would be necessary even though low oil prices and a weak housing market will harm the economy in the short term. New home prices in Canada were unchanged in November for the fourth month in a row, matching the median forecast of analysts, Statistics Canada said. Separate data from Statistics Canada showed that the value of Canadian building permits increased by 2.6 percent in November from October. Analysts had expected a decrease of 0.5 percent. Wall Street rose for its fifth straight day in a seesaw session as investors responded to mixed comments by Federal Reserve Chairman Jerome Powell. Powell said the U.S. central bank has the ability to be patient on policy given inflation is stable, but it would "substantially" reduce the size of its balance sheet. Canadian government bond prices gave back most of their earlier gains in sympathy with U.S. Treasuries. The 10-year rose 2 Canadian cents to yield 1.975 percent. On Wednesday, the 10-year yield touched its highest intraday since Dec. 27 at 2.000 percent. (Reporting by Fergal Smith; Editing by Sandra Maler)