C$ gives up earlier gains as wider yield spreads weigh

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar steadied against its U.S. counterpart on Thursday, with the currency unable to sustain earlier gains as recent moves in yield spreads counted against it.

The loonie was trading nearly unchanged at 1.3765 to the U.S. dollar, or 72.65 U.S. cents, after trading in a range of 1.3743 to 1.3781. On Tuesday, the currency hit a five-month low at 1.3846.

"It's going to have a tough pathway to appreciate meaningfully given the really wide (interest rate) spread between the U.S. and Canada," said Amo Sahota, director at Klarity FX in San Francisco. "It doesn't look like there's a quick way for that to get compressed again."

The gap between Canada's 2-year yield and the U.S. equivalent has widened to 75 basis points in favor of the U.S. note from 45 basis points at the start of the month as investors bet that the Bank of Canada would begin cutting interest rates ahead of the Federal Reserve.

The price of oil, one of Canada's major exports, held near a three-week low as investors weighed mixed U.S. economic data, U.S. sanctions on Venezuela and Iran and easing tensions in the Middle East. U.S. crude oil futures settled 4 cents higher at $82.73 a barrel.

Canada's plan to raise taxes on the savings of wealthy people and corporations is likely to hold back investment, potentially adding to the productivity malaise that has held back economic growth in recent years, say economists.

Canadian government bond yields moved higher across the curve, tracking moves in U.S. Treasuries. The 10-year was up 5.3 basis points at 3.754%.

(Reporting by Fergal Smith; Editing by Andrea Ricci)