The U.S. dollar index <.DXY> slumped below the 100.00 threshold after comments by U.S. President Donald Trump and his trade adviser stoked expectations that the new U.S. administration was targeting a weaker greenback.
"A large part of what Canada has been through has been a bloom coming off the rose for the U.S. dollar," said Mark Chandler, head of Canadian fixed income and currency strategy.
Many market participants had bought U.S. dollars on the hope of policies such as tax reform, but without worrying about parts of Trump's policy agenda that hinder growth, Chandler added.
The Canadian economy grew 0.4 percent in November from October, helped by a rebound in manufacturing. That beat the 0.3 percent increase forecast by analysts.
U.S. crude
Oil is one of Canada's major exports.
The Canadian dollar
The currency's weakest level of the session was C$1.3124, while it touched its strongest since Sept. 9 at $1.2969.
For the month, the loonie rose 3.2 percent after having climbed 3.1 percent in 2016.
The market awaited a speech by Bank of Canada Governor Stephen Poloz on economic modeling and monetary policy. The central bank will release his prepared remarks at 5:20 p.m. ET (2220 GMT).
Earlier this month, Poloz said an interest rate cut remained "on the table" if the risks facing the country are realized, warning there would be "material consequences" if Trump enacts protectionist policies.
"He is still going to be cautious" even if he acknowledges the recent strength of domestic data, said Chandler.
He expects the U.S. Federal Reserve to reinforce the risk of higher inflation in its interest rate decision on Wednesday and for that to weigh on the Canadian dollar against the greenback.
Canadian government bond prices were higher across the yield curve as bonds benefited from safe-haven demand. The two-year
(Reporting by Fergal Smith; Editing by Meredith Mazzilli and Tom Brown)
By Fergal Smith
