Canadian dollar pares losses on firm data, optimism on trade ties

TORONTO (Reuters) - The Canadian dollar pared most of its losses against the greenback on Wednesday, supported by firm domestic data and optimism about the outlook for trade ties with the United States.

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

Broader gains for the U.S. dollar .DXY against a basket of currencies had pressured the loonie earlier in the day after stronger-than-expected U.S. inflation and retail sales data added to hawkish comments from Federal Reserve Chair Janet Yellen the day before. But the greenback turned lower as Yellen, in her second day of economic testimony before Congress, offered no additional insight on the timing of the U.S. central bank's next rate hike.

Canadian manufacturing sales jumped for the second month in a row in December, with the 2.3 percent rise far exceeding economists’ expectations for a gain of 0.2 percent.

“The economy seems on a stronger footing,” said Hosen Marjaee, senior managing director, Canadian fixed income at Manulife Asset Management.

The loonie got a boost on Monday after U.S. President Donald Trump said he only wants to tweak trade ties with Canada.

“One big worry that we had (for the loonie) was with respect to the potential trade negotiations with the U.S. ... it seems we are a little bit off the hook,” Marjaee said.

Canada sends 75 percent of its exports to the United States, but took a step on Wednesday toward reducing its reliance on its southern neighbor.

The European Union and Canada secured clearance on Wednesday for their contentious free trade deal and the removal of import duties that supporters say will boost growth and jobs on both sides of the Atlantic.

U.S. crude CLc1 prices settled 9 cents lower at $53.11 a barrel, mostly holding its ground after U.S. stockpiles soared to a record high. [O/R]

Oil is one of Canada’s major exports.

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

The currency traded in a range of C$1.3066 to C$1.3120.

In other domestic data, resales of Canadian homes fell 1.3 percent in January from December.

Canadian government bond prices were lower across the yield curve in sympathy with U.S. Treasuries on the firm economic data. The two-year CA2YT=RR fell 3 Canadian cents to yield 0.815 percent and the 10-year CA10YT=RR declined 17 Canadian cents to yield 1.785 percent.

The 10-year yield touched its highest intraday since Feb. 1 at 1.801 percent.

Reporting by Fergal Smith; Editing by Jeffrey Benkoe and James Dalgleish