By Fergal Smith
TORONTO (Reuters) - The Canadian dollar climbed to its strongest in more than two months against a broadly weaker U.S. counterpart on Friday but gains for the currency were tempered by an uncertain outlook for Canada's federal election on Monday.
Polls show Prime Minister Justin Trudeau's Liberals are locked in a tie with the opposition Conservatives and will not capture enough seats for a majority. That could leave them in a weakened position, reliant on smaller parties to govern.
"I think there is probably some squaring up ahead of that event (the vote)," said Mark McCormick, North American head of FX strategy at TD Securities. "It could go in two directions, which could be currency moving."
A Conservative majority could be positive for the currency, while a Liberal minority government that relies on the support of the New Democratic Party (NDP) could be negative, McCormick said.
The left-leaning NDP has said it is opposed to the expansion of a flagship oil pipeline, Trans Mountain.
At 4:23 p.m. (2023 GMT), the Canadian dollar <CAD=D4> was trading 0.1% higher at 1.3124 to the greenback, or 76.20 U.S. cents. The currency touched its strongest intraday level since July 31 at 1.3119.
For the week, the loonie was up 0.6% after Britain reached a deal to avoid a disorderly divorce from the European Union that could have hurt the global economy.
Canada runs a current account deficit and is a major exporter of commodities, including oil, so its economy could benefit from a pick-up in global growth.
U.S. crude oil futures <CLc1> settled 0.3% lower, pressured by concerns about China's economy.
Speculators have raised their bullish bets on the Canadian dollar to the highest since mid-September, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed. As of Oct. 15, net long positions had increased to 12,961 contracts from 5,313 in the prior week.
The Teranet-National Bank Composite House Price Index rose 0.1% in September from August. After correcting for seasonal pressure, the index was higher for the second straight month.
The Bank of Canada, which will make its next interest rate decision on Oct. 30, has said that housing activity has recovered more quickly than expected, helped by lower mortgage rates.
Canadian government bond prices were higher across a flatter yield curve, with the 10-year <CA10YT=RR> rising 13 Canadian cents to yield 1.546%. On Thursday, the 10-year yield reached a three-month high intraday at 1.608%.
(Reporting by Fergal Smith; Editing by Chizu Nomiyama and Alistair Bell)