C$ rallies along with stocks; BoC decision due Wednesday

TORONTO (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Monday as stock markets globally climbed and ahead of an interest rate decision this week from the Bank of Canada, with the loonie recovering from a 10-day low on Friday.

World shares were approaching a five-month peak as investors wagered the earnings season would see most companies beat forecasts given expectations had been lowered by coronavirus lockdowns.

Canada runs a current account deficit and is a major exporter of commodities, so the loonie tends to sensitive to the global flow of trade and capital.

U.S. crude prices were down 0.4% at $40.37 a barrel, pressured by a record daily rise in global coronavirus cases with big spikes in infections over the weekend in the United States.

The Canadian dollar was trading 0.3% higher at 1.3545 to the greenback, or 73.83 U.S. cents, its strongest level of the session. On Friday, the loonie hit a 10-day low at 1.3631.

Speculators have cut their bearish bets on the Canadian dollar for the third straight week, data from the U.S. Commodity Futures Trading Commission showed on Friday. As of July 7, net short positions had decreased to 16,818 contracts from 20,519 in the prior week.

The BoC is widely expected to leave its benchmark interest rate at a record low of 0.25% on Wednesday. Much of the focus will be on the central bank's outlook for the economy.

On Friday, data showed that the economy added nearly one million jobs in June as firms reopened following closures triggered by COVID-19.

Canadian government bond yields were higher on Monday across much of a steeper curve, with the 10-year up 2.6 basis points at 0.575%.

Producer prices in Canada gained 0.4% in June from May, primarily on higher prices for energy and petroleum products, Statistics Canada said in a preliminary flash estimate.

(Reporting by Fergal Smith; Editing by Nick Zieminski)

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