Canadian dollar sticks to holding pattern as NAFTA uncertainty lingers

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar edged lower against its U.S. counterpart on Tuesday, pulling back from an earlier 11-day high as NAFTA trade pact uncertainty offset higher oil prices and stronger-than-expected domestic wholesale trade data.

At 3:38 p.m. EDT, the Canadian dollar was trading 0.2 percent lower at C$1.2816 to the greenback, or 78.03 U.S. cents.

The loonie touched its strongest since May 11 at C$1.2742. But without clarity on prospects for the North American Free Trade Agreement, which is being renegotiated by Canada, the United States and Mexico, it may be difficult for the currency to exit its recent range of C$1.2730 to C$1.2998.

"Oil and other commodities suggest the Canadian dollar is undervalued ... whereas interest rate spreads and continuing NAFTA uncertainty are pushing things in the opposite direction," said Michael Goshko, corporate risk manager at Western Union Business Solutions.

U.S. Treasury Secretary Steven Mnuchin on Monday said major issues remained in talks.

Canada sends about 75 percent of its exports to the United States, so its economy could be hurt if a deal on NAFTA is not reached.

Canadian wholesale trade jumped by 1.1 percent in March, greater than the 0.6 percent gain forecast by analysts, thanks largely to strength in the motor vehicle and parts subsector, Statistics Canada said.

The price of oil, one of Canada's major exports, notched a 3-1/2-year high, supported by concern that falling Venezuelan crude output and a potential drop in Iranian exports could further tighten global supply.

U.S. crude oil futures settled 0.2 percent higher at $72.13 a barrel.

Canadian government bond prices were lower across a flatter yield curve as trading resumed following Monday's Victoria Day holiday. The two-year fell 2 Canadian cents to yield 2.043 percent and the 10-year declined 3.5 Canadian cents to yield 2.490 percent.

On Thursday, the 10-year yield touched its highest in more than four years at 2.537 percent.

(Reporting by Fergal Smith; Editing by Bernadette Baum and Jonathan Oatis)