January 25, 2018 / 10:02 PM / a month ago

CANADA FX DEBT-C$ retreats from 4-month high as greenback rallies

 (Adds strategist quotes and details on market activity; updates
prices)
    * Canadian dollar at C$1.2368, or 80.85 U.S. cents
    * Loonie touches its strongest since Sept. 22 at C$1.2283
    * Canadian retail sales rise 0.2 percent in November
    * Bond prices higher across a flatter yield curve

    By Fergal Smith
    TORONTO, Jan 25 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Thursday, pulling back from an
earlier four-month high after comments by U.S. President Donald
Trump helped boost the greenback and as oil prices turned lower.
    The U.S. dollar        rebounded against a basket of major
currencies after Trump told CNBC he ultimately wants the dollar
to be strong. The dollar had weakened after comments on
Wednesday by Treasury Secretary Steven Mnuchin, which were
interpreted by the market as favoring a weaker currency.
            
    "Everything is just the (U.S.) dollar right now. That's the
main story," said Christian Lawrence, senior market strategist
at Rabobank.
    "When we look at the things that traditionally drive the
CAD, interest rates and oil, they have taken a bit of a
backseat. Although oil has had a bit of an impact over the last
few days."
    The three-month correlation between the Canadian dollar and
crude oil, one of Canada's major exports, has increased to 0.9
after having been negative in recent months.
    U.S. crude oil futures        retreated from an earlier
three-year high to settle 0.2 percent lower at $65.51 a barrel.
            
    At 4 p.m. EST (2100 GMT), the Canadian dollar          was
trading 0.1 percent lower at C$1.2368 to the greenback, or 80.85
U.S. cents.
    The currency's weakest level of the session was C$1.2391,
while it touched its strongest since Sept. 22 at C$1.2283.
    Canadian retail sales rose 0.2 percent in November, shy of
economists' expectations for 0.7 percent, as higher sales of
gasoline and electronics were tempered by a decline in new car
purchases.             
    Canada's inflation report for December is due on Friday,
which could help guide expectations for further Bank of Canada
interest rate hikes.
    Bank of Canada Governor Stephen Poloz said on Thursday that
even he did not know what potential there may be for further
hikes this year, reiterating that policymakers remained both
data dependent and alert to developments with the North American
Free Trade Agreement.             
    U.S. negotiators are holding firm in their demands for a
wide-ranging overhaul of NAFTA, sources close to the talks said,
raising questions about whether any real movement is happening
at the latest round of negotiations on the treaty.             
    Canadian government bond prices were higher across a flatter
yield curve, with the 10-year             rising 16 Canadian
cents to yield 2.244 percent.
    The 10-year yield touched its highest intraday since
September 2014 at 2.281 percent.

 (Reporting by Fergal Smith; Editing by Bernadette Baum and
Sandra Maler)
  
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