The Canadian dollar was little changed against its broadly firmer U.S. counterpart on Monday, as the market digested big gains for the currency last week after the Bank of Canada signalled that higher interest rates lie ahead.
The loonie rose 1.9 per cent last week, its biggest advance in 18 months. It held onto those gains on Monday even as oil prices fell and the U.S. dollar climbed against a basket of major currencies.
"The Canadian dollar is showing resilience" due to the central bank's shift to a more hawkish stance, said Eric Viloria, currency strategist at Wells Fargo.
Chances of a rate hike as early as next month have climbed to one-in-three from nearly zero earlier this month, while a rate hike has been fully priced in by December, data from the overnight index swaps market shows.
The Bank of Canada's top two officials said last week that rate cuts put in place in 2015 had largely done their work, and the bank would assess whether rates need to be kept at near-record lows.
At 5 p.m. ET, the Canadian dollar was trading unchanged at $1.3219 to the greenback, or 75.65 cents US. The currency traded in a range of $1.3191 to $1.3260. It touched its strongest in three-and-a-half months on Wednesday at $1.3165.
The greenback got a boost from comments by New York Federal Reserve President William Dudley suggesting the central bank remained on track to raise U.S. interest rates further despite recent disappointing inflation data.
Prices of oil, one of Canada's major exports, fell to a seven-month low as market players saw more signs that rising crude production in the United States, Libya and Nigeria undercut OPEC-led efforts to support the market with output curbs.
U.S. crude oil futures CLc1 settled 54 cents US lower at US$44.20 a barrel.
Canadian government bond prices were lower across a flatter yield curve in sympathy with U.S. Treasuries.
The two-year fell 8.5 cents to yield 0.943 per cent and the 10-year declined 16 cents to yield 1.540 per cent.
The gap between the two-year and 10-year yields narrowed by 2.9 basis points to a spread of +59.7 basis points, its smallest gap since Oct. 25, as shorter dated Canadian bonds underperformed.
Canadian wholesale trade data for April is due out on Tuesday, while inflation data for May is due on Friday.