Canadian dollar pulls back from 3-week high as euro slides

FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar edged lower against its U.S. counterpart on Thursday but held on to much of its recent gains as oil prices rose and despite broader strength for the greenback.

The loonie was trading 0.1% lower at 1.3570 to the greenback, or 73.69 U.S. cents, after touching its strongest level since Sept. 23 at 1.3496.

"It's doing well relative to other currencies. Europe is having a tough day," said Michael Goshko, senior market analyst at Convera Canada.

The euro briefly fell back below parity with the U.S. dollar after the European Central Bank raised interest rates in line with expectations and data showed that the U.S. economy rebounded more than expected in the third quarter.

Among G10 currencies, only the New Zealand dollar and the yen fared better than Canada's commodity-linked currency.

The price of oil, one of Canada's major exports, settled 1.3% higher at $89.08 a barrel as optimism over record U.S. crude exports helped outweigh concern over slack demand in China.

"Given the fact that we had a dovish hike and commentary from the Bank of Canada, it's very interesting to see the Canadian dollar stronger," Goshko said.

The loonie has rallied 3% since hitting earlier this month its weakest level in more than two years at 1.3977.

On Wednesday, the Bank of Canada announced a smaller-than-expected interest rate increase of half a percentage point and said it was getting closer to the end of its historic tightening campaign as it forecast the economy would stall over the next three quarters.

Canadian government bond yields eased across the curve, tracking the move in U.S. Treasuries and German Bunds.

The 10-year touched its lowest level since Oct. 5 at 3.176% before recovering slightly to 3.197%, down 8.7 basis points on the day.

(Reporting by Fergal Smith; Editing by Andrea Ricci and Jonathan Oatis)