Canadian dollar dips as investors focus on Fed testimony

TORONTO: The Canadian dollar weakened against its US counterpart on Tuesday as oil prices fell and attention turned to testimony by Federal Reserve Chair Jerome Powell, with the loonie giving back some of the previous day's rally.

The loonie was trading 0.2% lower at 1.2391 to the greenback, or 80.70 US cents. On Monday, it touched its weakest level since April 26 at 1.2485 before recovering to end up 0.8%, its biggest gain in nearly seven weeks.

Powell will testify in a congressional hearing likely to focus on how the US central bank is balancing rising inflation risks with its promise to ensure the economy recovers all the jobs lost after the onset of the coronavirus pandemic.

Canada is a major producer of commodities, including base metals and oil, which have benefited from Fed stimulus.

US crude oil futures fell 0.6% as OPEC+ begins discussions on raising oil production, but a strong demand outlook limited the decline.

Canada's retail sales report for April is due on Wednesday, which could offer clues on the strength of the domestic economy.

Canadian retailers are readying for a post-pandemic rebound as consumers emerge from lockdowns and open their wallets, but higher costs are eroding their profit margins and fanning inflationary pressures.

Canadian government bond yields were little changed across the curve, with the 10-year trading at 1.413%.

The gap between Canada's 2-year yield and its US equivalent widened by 0.7 basis points to about 21 basis points in favor of the Canadian bond, its widest spread since March last year.