Canadian dollar rebounds from near four-week low as stocks rally

TORONTO (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Tuesday, recovering from an earlier near four-week low as a rebound for stocks offset lower oil prices and domestic data showing a wider-than-expected trade deficit.

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

At 4 p.m. EST (2100 GMT), the Canadian dollar CAD=D4 was trading 0.2 percent higher at C$1.2512 to the greenback, or 79.92 U.S. cents.

The currency’s strongest level of the session was C$1.2505, while it touched its weakest since Jan. 11 at C$1.2569.

“We have seen this pretty remarkable volatility in equities but it just hasn’t translated into other segments of the market,” said Eric Theoret, currency strategist at Scotiabank. “What stands out is how calm FX has been.”

U.S. stocks climbed in volatile trading following the biggest one-day drops for the S&P 500 and the Dow in more than six years.

Commodity-linked currencies, such as the Canadian dollar, tend to underperform when stocks fall, because of the signal that it sends on prospects for global economic growth.

The loonie has retreated about 2 percent from its strongest in more than four months on Wednesday at C$1.2250.

The price of oil, one of Canada's major exports, fell on Tuesday for a third day. U.S. crude oil futures CLc1 settled 1.2 percent lower at $63.39 a barrel.

Canada’s trade deficit in December widened to C$3.19 billion as imports grew faster than exports, Statistics Canada said. Analysts had forecast a deficit of C$2.20 billion.

Widening of the deficit toward the extreme levels seen in 2017 is a reason “we’ve been persistent bears on the $C,” Nick Exarhos, an economist at CIBC Capital Markets, said in a research note.

In separate data, home sales in Toronto fell 22 percent in January from a year and the growth of purchasing activity in Canada slowed in January.

Canadian government bond prices were lower across the yield curve, with the two-year CA2YT=RR down 9 Canadian cents to yield 1.839 percent and the 10-year CA10YT=RR falling 57 Canadian cents to yield 2.365 percent.

On Monday, the 10-year yield touched its highest intraday level since May 2014 at 2.393 percent.

Bank of Canada Senior Deputy Governor Carolyn Wilkins on Thursday will give a speech, which could offer the next clues on the outlook for interest rates. Canada’s employment report for January is due on Friday.

Reporting by Fergal Smith; Editing by Jonathan Oatis and Sandra Maler