The commodity-linked Canadian dollar rallied to one-month highs against the broadly weaker U.S. dollar on Wednesday as oil prices regained ground following steep declines in the previous session.
Oil prices fell sharply on Tuesday, dropping more than 4%, amid fears that a massive supply glut is coinciding with slowing global demand.
Prices were also hit as hopes for a deal between the Organization of Petroleum Exporting Countries and Russia to cut output faded.
Oil prices regained ground on Wednesday, bolstering the risk-sensitive Canadian dollar, but gains looked likely to be held in check on persistent oversupply fears.
The loonie, as the Canadian dollar is also known, has rebounded against the greenback after falling to its weakest level since 2003 on January 20.
Demand for the loonie has been underpinned by data showing that the Canadian economy resumed growth in November after three months of declines and after the Bank of Canada left interest rates on hold at 0.5% last month.
The greenback shrugged off better-than-expected data on U.S. private-sector hiring.
Payrolls processor ADP reported that the U.S. private sector added 205,000 jobs last month, beating economists’ forecasts for an increase of 195,000.
Markets use the ADP data as a guide for the Labor Department’s employment report, which will be released Friday and covers both government and private-sector jobs growth.
Economists expect Friday’s report to show that the U.S. economy created 190,000 jobs last month, after an increase of 292,000 in December.
The U.S. was to release data on service sector activity later in the day.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.62% at 98.25.