Canadian dollar steadies as investors shrug off NAFTA worries

TORONTO (Reuters) - The Canadian dollar steadied against its American counterpart on Thursday, after volatile trading the day before when the Bank of Canada raised interest rates, as investors shrugged off worries that the United States will pull out of NAFTA.

FILE PHOTO: A Canada Dollar note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration/File Photo

At 4 p.m. EST (2100 GMT), the Canadian dollar CAD=D4 was trading at C$1.2419 to the greenback, or 80.52 U.S. cents, up 0.1 percent. The currency traded in a range of C$1.2414 to C$1.2489.

“The Canadian dollar has been very well supported,” said Colin Cieszynski, chief market strategist at The Fundamental Technician. “In time, I think the Canadian dollar can continue to work higher as people anticipate further Canadian rate hikes.”

On Wednesday, the Bank of Canada raised its benchmark interest rate by 25 basis points to 1.25 percent, its highest since January 2009, after recent data showed stronger inflation and strong job growth.

The future of the North American Free Trade Agreement was the most significant downside risk cited by the central bank. Canada sends about 75 percent of its exports to the United States.

U.S. President Donald Trump on Wednesday said that terminating NAFTA would result in the “best deal” to revamp the 24-year-old trade pact with Canada and Mexico in favor of U.S. interests.

“For the last three weeks now the (Mexican) peso has been on fire, which says to me that the NAFTA concerns are a bit overblown,” Cieszynski said.

The price of oil, one of Canada's major exports, was little changed as the market remained wary of increased supply from the United States. U.S. crude oil futures CLc1 settled 2 cents lower at $63.95 a barrel.

Canadian government bond prices were lower across much of the yield curve, with the two-year CA2YT=RR down 4 Canadian cents to yield 1.809 percent and the 10-year CA10YT=RR falling 11 Canadian cents to yield 2.219 percent.

The 10-year yield touched its highest intraday since September 2014 at 2.232 percent. Still, the gap between it and its U.S. equivalent widened by 2.9 basis points to a spread of -40.3 basis points, its widest since Dec. 27.

A report by ADP showed that Canada shed 7,100 jobs in December, driven by cuts in the manufacturing, education and trade sectors.

Reporting by Fergal Smith; Editing by Jonathan Oatis and Grant McCool