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The Canadian dollar weakened against its U.S. counterpart on Tuesday as a jump in U.S. Treasury yields weighed on risk appetite, with the loonie pulling back from its strongest level in nearly four weeks earlier in the session.

The loonie was trading 0.3 per cent lower at 1.2680 to the greenback, or 78.86 U.S. cents. The currency touched its strongest intraday level since Jan. 21 at 1.2610.

“The Canadian dollar is lower because rising U.S. yields finally hit the stock market today,” said Erik Bregar, head of FX strategy at Exchange Bank of Canada. “The loonie is still correlated very nicely with broader risk sentiment.”

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The 10-year U.S. Treasury yield, a benchmark for long-term borrowing costs, traded above 1.3 per cent for the first time in nearly one year, while the S&P 500 pulled back from an earlier record intraday high.

Canada runs a current account deficit and is a major producer of commodities, including oil, so the loonie tends to be sensitive to the global flow of trade and capital.

U.S. crude oil futures settled nearly 1 per cent higher at $60.05 a barrel after a deep freeze in the U.S. South that shut wells and oil refineries in Texas.

Canadian home sales rose 2.0 per cent in January from December, setting a new record amid strong demand in markets across the country, the Canadian Real Estate Association said.

Canada’s inflation report for January is due on Wednesday which could help guide expectations for the Bank of Canada policy outlook.

Canadian government bond yields were higher across a steeper curve in sympathy with U.S. Treasuries. The 10-year rose 8.8 basis points to 1.122 per cent, its highest since March last year.

Canada must justify its planned $100 billion post-pandemic stimulus plan before committing to significant new spending and should commit to a clear fiscal anchor, the International Monetary Fund said.

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