Canadian dollar pulls back from three-week high as tariff tensions weigh

TORONTO (Reuters) - The Canadian dollar edged lower against the greenback on Tuesday, pulling back from an earlier near three-week high, as increased tariff tensions added to the list of uncertainties discouraging investors from taking bets on the currency.

FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015. REUTERS/Mark Blinch/File Photo

Wall Street and the price of oil, one of Canada’s major exports, fell as U.S. President Donald Trump said he would impose tariffs on $11 billion of European goods and after the International Monetary Fund cut its global economic growth forecasts.

U.S. crude oil futures settled 0.7% lower at $63.98 a barrel.

“There are just so many factors that are keeping investors on the sidelines,” said Blake Jespersen, managing director, foreign exchange sales at BMO Capital Markets.

The U.S.-China trade dispute, the potential for a messy Brexit and inversion of the U.S. and Canadian yield curves have all worried investors in recent weeks.

“Given the dovish stance by all the central banks recently I think investors are looking for signs that maybe the economy will do slightly better and maybe central banks will be forced to change their stance,” Jespersen said.

The Bank of Canada has been one of the central banks to turn more dovish. It has raised interest rates 125 basis points since July 2017, but data from the overnight index swaps market shows investors have shifted this year from expecting further tightening to seeing about a 40% chance of a cut by December.

At 3:32 p.m. (1932 GMT), the Canadian dollar was trading 0.1% lower at 1.3325 to the greenback, or 75.05 U.S. cents. The currency touched its strongest intraday level since March 21 at 1.3285.

Despite the decline, the loonie was up 0.2% since the start of the month. It has advanced in 11 of the last 13 Aprils, a winning streak strategists link to seasonal vitality in stocks and energy products.

Canadian government bond prices were higher across much of the yield curve in sympathy with U.S. Treasuries. The two-year rose up 2.5 Canadian cents to yield 1.602% and the 10-year was up 7 Canadian cents to yield 1.727%.

Reporting by Fergal Smith; Editing by Tom Brown