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Canadian dollar edged lower after Monday's big jump

FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto, January 23, 2015. REUTERS/Mark Blinch

(Reuters) - The Canadian dollar edged lower against its U.S. counterpart on Tuesday, retreating from the more than two-year high hit in the previous session after a promising coronavirus vaccine development boosted demand for riskier currencies.

The Canadian dollar CAD= was trading 0.2% lower at 1.3032 to the greenback, or 76.73 U.S. cents, pulling back from its strongest intraday level in more than two years on Monday at 1.2928.

The U.S. dollar was about flat on Tuesday as investors remained optimistic about progress toward a COVID-19 vaccine, although the moves were more tempered than in the previous session.

“The Canadian dollar rallied to its highest level against the U.S. dollar in a little over two years yesterday before the pro-risk rally stalled,” Shaun Osborne, chief currency strategist at Scotiabank, said in a note.

“But the fact that the Canadian dollar is down, if only modestly, on the session so far, suggests markets are recalibrating after yesterday’s failed CAD rally,” Osborne said.

The loonie found some support from continued strength in the price of oil, one of Canada’s major exports.

Oil prices rose on Tuesday as hopes that a COVID-19 vaccine could be on the horizon outweighed the expected negative impact on fuel demand of new lockdowns to curb the virus.

Canadian government bond yields were mixed across the curve, with the yield on the 10-year CA10YT=RR up 2.6 basis points at 0.773%, while the yield on the two-year CA2YT=RR was marginally lower on the day.

Reporting by Saqib Iqbal Ahmed; Editing by Nick Zieminski and Tom Brown

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