Canadian dollar pulls back from near three-week high as oil prices slide

TORONTO (Reuters) - The Canadian dollar edged lower against the greenback on Monday, reversing from its highest level in nearly three weeks earlier in the session as oil prices tumbled and investors braced for domestic inflation data due later in the week.

FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015./File Photo

The price of oil, one of Canada’s major exports, sank after U.S. President Donald Trump said OPEC should ease its approach on boosting crude prices, which he said were “getting too high.”

U.S. crude oil futures settled 3.1 percent lower at $55.48 a barrel.

The decline in oil prices and “traders wanting to square up positions” ahead of inflation data triggered the loonie’s pullback, said Darren Richardson, Chief Operating Officer at Richardson International Currency Exchange Inc.

Canada’s inflation report for January is due on Wednesday and fourth-quarter domestic product data is due on Friday, which could help guide expectations for further interest rate hikes from the Bank of Canada.

Money markets expect the Bank of Canada to leave its benchmark interest rate unchanged at 1.75 percent at next week’s interest rate decision, after 125 basis points of tightening by the central bank since July 2017.

At 4:21 p.m. (2121 GMT), the Canadian dollar was trading 0.4 percent lower at 1.3189 to the greenback, or 75.82 U.S. cents. The currency’s weakest level of the session was 1.3196, while it touched its strongest since Feb. 5 at 1.3113.

U.S. stocks rose when Trump said he would delay a planned hike in tariffs on Chinese imports and that the two countries were “very, very close” to a trade deal.

Canada exports many commodities, including oil, so its economy could benefit from an improved outlook for global trade.

Data on Friday from the U.S. Commodity Futures Trading Commission and Reuters calculations showed that speculators cut their bearish bets on the Canadian dollar. As of Feb. 5, net short positions had fallen to 42,037 contracts from 56,390 in the prior week.

Canadian government bond prices edged lower on Monday across much of the yield curve in sympathy with U.S. Treasuries. The two-year fell 1 Canadian cent to yield 1.783 percent and the 10-year declined 5 Canadian cents to yield 1.897 percent.

The gap between Canada’s 2-year yield and its U.S. equivalent widened by 1.7 basis points to a spread of 72.9 basis points in favor of the U.S. bond.

Reporting by Fergal Smith; Editing by Andrea Ricci and Grant McCool