Canadian dollar retreats from 3-year high as bond yields climb

TORONTO: The Canadian dollar edged lower against its US counterpart on Thursday, pulling back from an earlier three-year high as oil prices dropped and a jump in bond yields weighed on risk appetite.

The US dollar rebounded against a basket of major currencies after it was pressured on Wednesday by the Federal Reserve's pledge to look past inflation for a while and keep monetary policy loose through 2023, while US stock index futures fell, including declines for yield-sensitive technology stocks.

The price of oil, one of Canada's major exports, lost ground for a fifth day running after official data showed a further increase in US crude and fuel inventories while the ever-present COVID-19 pandemic clouded the prospects for demand recovery. US crude prices were down 0.9% at $64.02 a barrel.

"Softer crude and the uncertain risk mood are clear headwinds for the CAD intraday," strategists at Scotiabank, including Shaun Osborne, said in a note.

Still, the modest pullback for the loonie shows "an awful lot of resilience in the CAD as investors continue to anticipate the BoC tapering asset purchases in April," the strategists said.

The Canadian dollar dipped 0.1% to 1.2417 per greenback, or 80.53 US cents, having touched its strongest intraday level since February 2018 at 1.2365.

A reduction of bond purchases by the Bank of Canada would provide the clearest signal yet that Canada's economy requires less help to emerge from the coronavirus crisis.

Canadian new home prices rose 1.9% in February from January, which was their fastest pace in more than three decades, Statistics Canada said.

Canadian government bond yields were higher across a steeper curve in sympathy with US Treasuries. The 10-year rose to its highest since January last year at 1.677% before dipping to 1.659%, up 6.5 basis points on the day.