Canadian dollar pulls back from one-week high as Yellen boosts greenback

TORONTO (Reuters) - The Canadian dollar posted a fresh one-week high against its U.S. counterpart on Tuesday as oil rose but gains were mostly reversed as testimony by Federal Reserve Chair Janet Yellen boosted the greenback.

A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015. REUTERS/Mark Blinch

Gains for the loonie came one day after U.S. President Donald Trump said he only wants to tweak trade ties with Canada.

“A very disruptive trade agenda could have prompted the Bank of Canada to cut rates,” Jean said.

Still, Trump’s pledge to renegotiate the North American Free Trade Agreement (NAFTA) to focus on Mexico is almost impossible and Canada will not emerge unscathed, Canadian officials and trade experts said.

Canada sends 75 percent of its exports to the United States.

A proposed U.S. border adjustment tax would reduce Canada’s real gross domestic product by almost 1 percent, the C.D. Howe Institute said in a research report.

U.S. crude CLc1 prices settled 27 cents higher at $53.20 a barrel, but some gains were pared amid concerns about rising supply from U.S. shale output. [O/R]

Oil is one of Canada’s major exports.

The Canadian dollar CAD=D4 ended at C$1.3071 to the greenback, or 76.51 U.S. cents, slightly stronger than Monday's close of C$1.3075, or 76.48 U.S. cents.

The currency’s weakest level of the session was C$1.3107, while it touched its strongest since Feb. 6 at C$1.3025.

The U.S. dollar .DXY rallied against a basket of major currencies as investors raised their outlook on a faster pace of U.S. rate increases.

“We are seeing a response to Janet Yellen’s comments leaving the door wide open for a potential rate hike as soon as March,” said Jimmy Jean, senior economist at Desjardins.

The chances of a Fed rate hike in March rose to nearly 18 percent from 13 percent the day before, according to the CME Group’s FedWatch tool.

In domestic data, home prices rose 0.5 percent in January and 13.0 percent from a year earlier as values in the hot Toronto market climbed even further and those in Vancouver picked up after three months of declines, the Teranet-National Bank Composite House Price Index showed.

Canadian government bond prices were lower across the yield curve in sympathy with U.S. Treasuries on Yellen's more hawkish-than-expected tone. The two-year CA2YT=RR dipped 2.5 Canadian cents to yield 0.799 percent and the 10-year CA10YT=RR declined 28 Canadian cents to yield 1.765 percent.

The 10-year yield touched its highest intraday since Feb. 3 at 1.793 percent.

Reporting by Fergal Smith; Editing by Lisa Von Ahn and Jonathan Oatis