Canadian dollar dips as rising bond yields boost greenback

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar edged lower against its U.S. counterpart on Wednesday, as the recent move higher in U.S. Treasury yields bolstered the greenback and domestic data showed underlying inflation holding well below the Bank of Canada's 2% target.

The Canadian dollar was trading 0.1% lower at 1.2698 to the greenback, or 78.75 U.S. cents, having traded in a range of 1.2685 to 1.2745. On Tuesday, it touched its strongest intraday level in nearly four weeks at 1.2606.

"The spike higher in U.S. Treasury yields to one-year highs the past two days seems to have helped the U.S. dollar catch a bid," said Michael Goshko, corporate risk manager at Western Union Business Solutions.

"Adding fuel to the dollar's rise was this morning's extraordinary U.S. retail sales report for January, which destroyed expectations," Goshko said.

U.S. retail sales, industrial output and producer prices data provided robust surprises to the upside, signaling the economic recovery from the pandemic recession is gaining momentum as vaccine deployment progresses.

Canada's annual inflation rate in January accelerated to 1.0% from 0.7% the previous month, Statistics Canada said. The average of the Bank of Canada's three core measures nudged up to 1.5% from 1.4% but that was after a sharp downward revision to December's reading for the median.

"The BoC has maintained their commitment to maintain accommodative policy for an extended period of time," said Ryan Brecht, a senior economist at Action Economics. "This report is consistent with their policy pledge."

The price of oil, one of Canada's major exports, climbed as frigid temperatures curtailed production in Texas. U.S. crude oil futures settled 1.8% higher at $61.14 a barrel.

Canada's 10-year yield eased nearly 1 basis point to 1.118%, pulling back from 1.149% earlier in the session, which was its highest since March last year.

(Reporting by Fergal Smith; Editing by Paul Simao and Peter Cooney)