January 26, 2016 / 12:49 AM / 2 years ago

Oil rebound boosts sterling, Canada's loonie vs dollar

A man walks past an advertisement promoting China's renminbi (RMB) or yuan, U.S. dollar and Euro exchange services at foreign exchange store in Hong Kong, China, August 13, 2015.Tyrone Siu

NEW YORK (Reuters) - A recovery in oil prices pushed the dollar higher against the safe-haven yen and Swiss franc on Tuesday, but it fell overall as sterling rose and the oil-linked Canadian dollar surged.

With crude oil prices near 13-year lows, senior officials of the Organization of the Petroleum Exporting Countries renewed calls for rival producers to cut supply alongside its members.

That helped push oil prices above $31 a barrel as markets hoped OPEC and Russia could be nearing a deal to reduce the supply of crude in the market.

The bounce in oil prices improved the market's risk appetite, leading investors to unwind positions in funding currencies used to buy assets with higher returns and boosting the dollar.

The dollar gained 0.1 percent against the yen to 118.40. Against the Swiss franc, the dollar rose to its highest since Dec. 3, last trading up 0.4 percent at 1.0163 francs.

The increase in risk appetite also encouraged investors to buy sterling, which had fallen as low as $1.4171 in European trading. It was last up 0.75 percent at $1.4354.

An employee checks U.S. dollar bank-notes at a bank in Hanoi, Vietnam August 12, 2015.Kham

Oil's rebound provided major relief to the Canadian dollar, which has been battered in recent weeks.

The dollar fell 1.5 percent against the loonie to C$1.4083, a two-week low.

The Bank of Canada left its interest rates unchanged at its Jan. 20 meeting. The loonie has had gains or losses of at least 1 percent every day since.

"A lot of moves were based on oil coming (down) and the belief the Bank of Canada was going to cut rates, which they did not," said Dave Bradley, director of FX trading at Scotia Capital in Toronto. "I think market players are a little bit nervous, so you tend to get larger moves on a currency when that happens."

The dollar index fell 0.3 percent to 99.061 despite positive U.S. economic data showing a surprisingly large jump in consumer confidence and a rise in U.S. home prices. The data went largely unnoticed by markets, because investors were awaiting word from the Federal Reserve on interest rates on Wednesday, said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

"The fact that the U.S. continues to perform relatively well is certainly good news," said Esiner, "but the real concern and the real story is going to be what's going on in the global economy and how the Fed characterizes that with respect to their outlook."

Reporting by Dion Rabouin; Editing by Meredith Mazzilli

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