TORONTO, July 8 (Reuters) - The commodity-linked Canadian dollar strengthened against its U.S. counterpart on Wednesday as oil prices jumped and investors raised bets on a Bank of Canada interest rate hike this year.
The loonie was trading 0.2% higher at 1.4170 per U.S. dollar, or 70.57 U.S. cents, after moving in a range of 1.4156 to 1.4210.
"The CAD has performed relatively well through the overnight volatility," Shaun Osborne and Eric Theoret, strategists at Scotiabank, said in a note. "Negative CAD sentiment is moderating but spot remains quite elevated."
The price of oil , one of Canada's major exports, rose 5.2% to $74.10 a barrel after U.S. President Donald Trump said an interim agreement to end the war with Iran was "over" and that the United States was likely to launch new strikes on Wednesday night.
Stock markets globally fell as the jump in oil prices stoked worries about the inflation outlook and the prospect of tighter monetary policy.
Investors see a roughly 60% chance the BoC will raise interest rates this year, up from 40% on Tuesday, swap market data showed. .
In the options market, three-month USD-CAD risk reversals were trading at an implied volatility of 0.14 percentage points in favor of calls over puts, marking the lowest premium for the greenback since June 3.
"The declining premium for USD calls suggests markets have taken the early July USMCA developments in their stride and might point to some modest upside potential in the CAD," the strategists said.
Last week, the U.S. declined to extend the United States-Mexico-Canada Agreement, seeking changes to the trade deal.
Canadian bond yields moved higher across the curve. The 10-year was up as much as 9.5 basis points at 3.590%, its highest level since May 21.
Reporting by Fergal Smith, editing by Deepa Babington
