Canadian dollar pares decline after dovish Fed minutes, NAFTA clues

TORONTO (Reuters) - After hitting a one-week low, the Canadian dollar pared its losses as investors weighed minutes from the last Federal Reserve meeting and prospects for progress on NAFTA trade talks.

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

At 4 p.m. EDT (2000 GMT), the Canadian dollar CAD=D4 was trading 0.1 percent lower at C$1.2832 to the greenback, or 77.93 U.S. cents. The currency had hit its weakest intraday level since May 15 at C$1.2916.

“There have been some comments on NAFTA, on the auto sector, which suggest that things continue to move along there,” said Shaun Osborne, chief currency strategist at Scotiabank.

President Donald Trump, who has repeatedly pledged to revive American manufacturing, said that “big news” was coming that would be welcomed by U.S. auto workers, and he suggested it was somehow linked to North American Free Trade Agreement talks.

Canada sends 75 percent of its exports to the United States so its economy could benefit if a deal is reached.

The U.S. dollar .DXY climbed against a basket of major currencies, but the rally stalled after the Fed suggested higher inflation may not result in faster interest rate hikes.

“The Fed minutes were viewed somewhat dovishly,” Osborne said. “We have seen U.S. yields pull back a bit.”

Canadian government bond prices were higher across a flatter yield curve in sympathy with U.S. Treasuries. The two-year CA2YT=RR rose 6.5 Canadian cents to yield 2.023 percent and the 10-year CA10YT=RR climbed 67 Canadian cents to yield 2.439 percent.

U.S. crude oil futures CLc1 settled 0.5 percent lower at C$71.84 a barrel, pressured by an unexpected build in U.S. crude and gasoline inventories despite strong demand.

Oil is one of Canada’s major exports.

Lending to small Canadian businesses picked up in March as gains were seen in the manufacturing and construction industries, boding well for stronger economic growth in the coming months.

Reporting by Fergal Smith; editing by Jonathan Oatis and Cynthia Osterman