"We do have quite a bit of event risk later in the week, so I think the market is taking today as an opportunity to take a breather," said Blake Jespersen, managing director for foreign exchange sales at BMO Capital Markets, noting that activity was subdued with U.S. markets closed for Martin Luther King Jr. Day.
"There's definitely some caution that's set in now, Jespersen said. "People are reassessing their views on Trump and what he's actually going to do."
The Canadian dollar
The currency's strongest level of the session was C$1.3102, while its weakest was C$1.3188. On Thursday, the loonie had touched a near 3-month high at C$1.3028.
The U.S. dollar <.DXY> rose after suffering its worst week since November. It was hit last week by a perceived lack of clarity over what Trump will do once he assumes office.
Analysts expect the Bank of Canada to leave its policy rate on hold at 0.5 percent at Wednesday's announcement, where the central bank will also update its economic forecasts.
The possibility that Trump will follow through on protectionist rhetoric has dented the outlook for Canada's economy, with nearly half of economists polled recently paring back growth forecasts.
Prices of oil, one of Canada's major exports, settled higher as Saudi Arabia said it would adhere strictly to its output reduction commitment, although expectations for rising U.S. production hung over the market.
Speculators have raised bearish bets on the Canadian dollar. Net short Canadian dollar positions rose to 7,935 contracts as of Jan. 10 from 3,871 a week earlier, data from the Commodity Futures Trading Commission and Reuters calculations showed on Friday.
Canadian government bond prices were higher across the yield curve as investors sought shelter in safe haven assets as uncertainty over Britain's departure from the European Union and the policies of Trump curbed appetite for risk.
The two-year
(Additional reporting by Fergal Smith; Editing by Nick Zieminski and Bill Rigby)
By Alastair Sharp
