TORONTO (Reuters) - The Canadian dollar edged higher against its U.S. counterpart on Tuesday as oil prices rose, but the currency held near an earlier 4-1/2-year low as investors bet on another supersized interest rate cut this week from the Bank of Canada. 

The loonie was trading 0.1% higher at 1.4163 to the U.S. dollar, or 70.61 U.S. cents, after touching its weakest intraday level since April 2020 at 1.4194.

Investors see an 88% chance the BoC will cut interest rates by half a percentage point to 3.25% on Wednesday, after easing by that magnitude in October for the first time in 15 years outside of the pandemic era.

"A 50 bp (basis point) cut would provide a drag to CAD," strategists at TD Securities, including Jayati Bharadwaj, said in a note.

"USD positioning and short-term valuations remain quite stretched which can provide some offset to USD strength. However, we remain strong USD bulls through early 2025, and believe USD dips will be brief and shallow."

Speculators have raised their bearish bets on the Canadian dollar to historically large levels. As of Dec. 3, net short had increased to 159,346 contracts from 154,002 in the prior week, the latest data from the U.S. Commodity Futures Trading Commission showed.   

The price of oil, one of Canada's major exports, found support from Chinese stimulus that could boost demand from the world's biggest crude buyer. U.S. crude oil futures were up 0.7% at $68.82 a barrel.    

Canadian government bond yields edged lower across the curve.

The 2-year yield was down 1.3 basis point at 2.903%, while it traded 5.6 basis points further below its U.S. equivalent to a gap of roughly 127 basis points in favor of the U.S. note, the largest spread since November 1997.

(Reporting by Fergal Smith; Editing by Will Dunham)

By Fergal Smith