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  (Mark Blin/Reute)


(Mark Blin/Reute)

Loonie dips as oil falls and greenback rises, but further strength seen ahead Add to ...

The Canadian dollar softened against the U.S. dollar on Thursday, paring some of this week’s gains as lower oil prices and broader strength in the greenback offset stronger-than-expected domestic manufacturing data.

Canadian manufacturing sales topped forecasts and hit a record in April as sales of petroleum and coal products rebounded after two months of declines, data from Statistics Canada showed.

At 4:00 p.m. ET, the Canadian dollar was trading at $1.3279 to the greenback, or 75.31 U.S. cents, down 0.2 per cent.

The currency traded in a range of $1.3226 to $1.3308.

Oil prices touched six-month lows, under pressure from high global inventories and doubts about OPEC’s ability to reduce the glut. U.S. crude prices were down 0.72 per cent to $44.41 a barrel.

Shaun Osborne, chief currency strategist at Scotiabank said the summer driving season usually means an increase in demand and tighter supply, but inventory data suggests significant excess glut.

The U.S. dollar rose against a basket of major currencies, supported by the Federal Reserve’s decision on Wednesday to boost interest rates further.

On Wednesday, the loonie touched its strongest in 3-1/2 months at $1.3165. It has gained 1.5 per cent this week, helped by signals from the Bank of Canada that higher interest rates lie ahead.

“That will be quite significant for Canadian dollar going forward,” said Osborne, adding the currency could potentially trade below $1.30 in the coming months.

“Because it won’t be just one rate increase, it will be more than one, and we barely have one rate increase factored in for Canada over the next 12 months at this point.”

Chances of a rate hike this year have surged to more than 90 per cent from less than one-in-four before stronger-than-expected jobs data on Friday.

The central bank, which had long said interest rates are too blunt a tool to tackle the country’s housing market, may have finally decided to act and at least limit its role in fueling a potential bubble with low interest rates.

Resales of Canadian homes dropped 6.2 per cent in May from April, while Toronto sales plunged 25.3 per cent as new housing policy changes sideswiped demand and new listings rose again, the Canadian Real Estate Association said.

Canadian government bond prices were lower across the yield curve, with the two-year price down 7.5 cents to yield 0.918 per cent and the benchmark 10-year falling 38 cents to yield 1.533 per cent.

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