Canadian dollar pulls back from two-week high as stocks stumble

TORONTO (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Tuesday, retreating from an earlier two-week high, as oil and equity prices fell and the greenback broadly rose.

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

U.S. crude oil futures CLc1 settled 0.5 percent lower at $65.25 a barrel, while Wall Street was dragged down by technology shares as investors weighed discussions between the United States and China on trade.

“It (the Canadian dollar) has been back and forth, it’s basically trading off equity volatility for the most part,” said David Bradley, director of foreign exchange trading at Scotiabank.

Oil is one of Canada’s major exports. The country’s currency tends be sensitive to stock market performance due to the signal it sends about the strength of the global economy.

The U.S. dollar .DXY rose against a basket of major currencies as worries about the momentum of the euro zone's economic expansion weighed on the euro.

At 4 p.m. EST (2000 GMT), the Canadian dollar CAD=D4 was trading 0.4 percent lower at C$1.2892 to the greenback, or 77.57 U.S. cents.

The currency’s weakest level of the session was C$1.2903, while it touched its strongest since March 12 at C$1.2815.

Reduced fears of a global trade war had helped boost Canada’s commodity-linked currency on Monday. The loonie has also benefited in the last week from optimism about a deal to revamp the North American Free Trade Agreement and hotter-than-expected domestic inflation data.

Canadian government bond prices were higher across a flatter yield curve, with the two-year CA2YT=RR up 9.5 Canadian cents to yield 1.831 percent and the 10-year CA10YT=RR rising 68 Canadian cents to yield 2.146 percent.

The gap between Canada’s 10-year yield and its U.S. equivalent widened by 2.7 basis points to a spread of -63.5 basis points.

Canada’s gross domestic product data for January is due on Thursday.

Reporting by Fergal Smith; Editing by Nick Zieminski and Marguerita Choy