Canadian dollar falls from 4-month high after Trump boosts U.S. dollar

The Canadian dollar retreated from a four-month high against the U.S. dollar on Thursday after comments fromU.S. President Donald Trump boosted the greenback against most major currencies.

During his first visit to the World Economic Forum in Davos, Switzerland, Trump stressed that he ultimately wanted to see a stronger U.S. dollar.

The move comes on the back of comments made byTreasury Secretary StevenMnuchinon Wednesday, whenhesaid a weaker buck wasgood for American exporters.Those comments had sent the U.S. dollar to a three-year low against a basket of currencies.

On Thursday, the loonie ended up closing at a trading average of 81.15 US cents after trading at its highest level since September in the morning.

The Canadian dollarhasrisen some fiveper cent against the greenback over the past month, which is considered a big move on currency markets.

Butsome strategists arequick to point outthat the loonie could hit some bumps.

"From our perspective, this move is looking a bit stretched, when we look at some of the fundamentalsthat have been driving the Canadian dollarfor probably a year now," said Eric Theoret, a strategist at Scotiabank.

He thinks the financial markets are pricing in more interest rate hikes from the Bank of Canada this year than what actually might take place.

The central bankis expected to raise rates at least two more times this year after its first hike to the benchmark interest ratejust last week.

U.S. dollar story

While the rise in the Canadian currency has been impressive, analysts also stressed that much is dependent on the direction of the U.S. dollar.

David Doyle, analyst at MacquarieCapital Markets, said the loonie's rise is not a story about the strength in the currency as much as it is about weakness in the U.S. dollar against almost every global currency.

"In Canada, we focus on the loonie, but it's been almost every currency globally that's been rising relative to the U.S.dollar," he said.

Oil 'not relevant'

Bipan Rai, strategist at CIBCCapital Markets, echoed Doyle's view.

"While oil prices are helping, it's the cyclical decline in the U.S. dollarcombined with decent domestic numbers that are bolstering the loonie for now," he said.

"Unless oil prices reach a level that drive fresh investment in the oil sands sector, the loonie's rise will be mostly reflective of the U.S. dollar'scyclical downtrend."

He expects the Canadian dollar to continue tradingwithin a range of 80 to 83 US cents in the coming month.

Theoretbacked that sentiment, saying the price of oil is no longer as relevant to the movement of the Canadian dollar.

"Thatrelevance was very important and very high in 2014 when we had the oil price crash and Canada's adjustment to that.

"That was a period where oil prices were the driver for the Canadian dollar,but when we look at currencies generally, fundamentally, the core piece we look at is interest rates."

Analysts agreed that NAFTA talks are also a biggerrisk when it comes to the strength of the Canadian dollar.

"What we've seen in financial markets over the last number of months is that when you've had negative headlines come out in regards to NAFTA, it's triggered Canadian dollar weakness," said Doyle.

Rai added that any decline in global demand that would impact Canadian exports would also lower the value of theloonie.