The Canadian dollar retreated on Monday from an earlier five-week high against its broadly firmer U.S. counterpart, as oil fell and investors weighed how Friday's robust jobs data will affect a Bank of Canada interest rate decision this week.
At 4 p.m. ET, the Canadian dollar was trading at $1.2702 to the greenback, or 78.73 cents US, down 0.1 per cent. The currency's weakest level of the session was $1.2726, while it touched its strongest since Oct. 25 at $1.2656.
"The loonie is catching its breath," said Rahim Madhavji, president of Knightsbridge Foreign Exchange. "It had a huge move on Friday."
The loonie scored its biggest gain on Friday since March 2016 after data showed the economy added nearly 80,000 jobs in November.
"It has people questioning what is going to happen with the Bank of Canada," Madhavji said.
Canada's central bank has said it is "data dependent." It is expected to leave its benchmark interest rate steady at one per cent on Wednesday. But chances of a hike in March have increased to 86 per cent from 67 per cent before Friday's jobs data.
The U.S. dollar rose against a basket of major currencies after the U.S. Senate approved a major tax overhaul over the weekend that aims to cut taxes for businesses, while proposing a mixed package of changes for individual Americans.
Prices of oil fell on profit-taking as the market eyed signs of rising U.S. production, though prices remained close to recent two-year highs. U.S. crude prices settled 1.5 per cent lower at US$57.47 a barrel.
Canada will continue to explore a free trade agreement with China, Canadian Prime Minister Justin Trudeau said, as it weighs its options after the United States threatened to pull out of the North American Free Trade Agreement.
Canadian government bond prices were lower across a flatter yield curve, with the two-year down six cents to yield 1.552 per cent and the 10-year falling 13 cents to yield 1.924 per cent.
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