Canadian dollar retreats from three-year high as U.S. bond yields soar

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar weakened on Thursday by the most in four weeks against the greenback, as surging U.S. bond yields pressured global equity markets, with the loonie pulling back from a three-year high.

The loonie was trading 0.7% lower at 1.2596 to the greenback, or 79.39 U.S. cents, its biggest decline since Jan. 27. During the session, the loonie touched its strongest intraday level since February 2018 at 1.2468.

"The U.S. 10-year (yield) has just run away with it this afternoon and is placing substantial pressure on high-beta currencies," such as the Canadian dollar, said Simon Harvey, senior FX market analyst for Monex Europe and Monex Canada.

High-beta currencies tend to be more sensitive to risk sentiment than the broader market. Canada runs a current account deficit and is a major exporter of commodities, including oil.

A jump in benchmark U.S. Treasury yields led a gauge of global equity markets to retreat as investors sold the high-flying tech stocks that fueled Wall Street's rally to record highs and took precautions against the threat of inflation.

The price of oil, one of Canada's major exports, edged up to its highest close since 2019 as Texas refineries restarted production after last week's freeze. U.S. crude oil futures settled 0.5% higher at $63.53 a barrel.

Canadian payroll employment rose by 44,200 in December after decreasing by 64,500 in November, Statistics Canada said.

Canadian government bond yields were higher across a steeper curve in sympathy with U.S. Treasuries. The 10-year touched its highest level since January last year at 1.486% before dipping to 1.457%, up 14.2 basis points on the day.

(Reporting by Fergal Smith; Editing by Kirsten Donovan)