Canadian dollar retreats from four-month high as greenback rallies

TORONTO (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Thursday, pulling back from an earlier four-month high after comments by U.S. President Donald Trump helped boost the greenback and as oil prices turned lower.

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

The U.S. dollar .DXY rebounded against a basket of major currencies after Trump told CNBC he ultimately wants the dollar to be strong. The dollar had weakened after comments on Wednesday by Treasury Secretary Steven Mnuchin, which were interpreted by the market as favoring a weaker currency.

“Everything is just the (U.S.) dollar right now. That’s the main story,” said Christian Lawrence, senior market strategist at Rabobank.

“When we look at the things that traditionally drive the CAD, interest rates and oil, they have taken a bit of a backseat. Although oil has had a bit of an impact over the last few days.”

The three-month correlation between the Canadian dollar and crude oil, one of Canada’s major exports, has increased to 0.9 after having been negative in recent months.

U.S. crude oil futures CLc1 retreated from an earlier three-year high to settle 0.2 percent lower at $65.51 a barrel.

At 4 p.m. EST (2100 GMT), the Canadian dollar CAD=D4 was trading 0.1 percent lower at C$1.2368 to the greenback, or 80.85 U.S. cents.

The currency’s weakest level of the session was C$1.2391, while it touched its strongest since Sept. 22 at C$1.2283.

Canadian retail sales rose 0.2 percent in November, shy of economists’ expectations for 0.7 percent, as higher sales of gasoline and electronics were tempered by a decline in new car purchases.

Canada’s inflation report for December is due on Friday, which could help guide expectations for further Bank of Canada interest rate hikes.

Bank of Canada Governor Stephen Poloz said on Thursday that even he did not know what potential there may be for further hikes this year, reiterating that policymakers remained both data dependent and alert to developments with the North American Free Trade Agreement.

U.S. negotiators are holding firm in their demands for a wide-ranging overhaul of NAFTA, sources close to the talks said, raising questions about whether any real movement is happening at the latest round of negotiations on the treaty.

Canadian government bond prices were higher across a flatter yield curve, with the 10-year CA10YT=RR rising 16 Canadian cents to yield 2.244 percent.

The 10-year yield touched its highest intraday since September 2014 at 2.281 percent.

Reporting by Fergal Smith; Editing by Bernadette Baum and Sandra Maler