TORONTO, Aug 18 (Reuters) - The Canadian dollar gave back some recent gains against its U.S. counterpart on Tuesday and bond yields edged off multi-year highs, as investors weighed prospects of Canada reaching a deal with Washington to avoid new tariffs on its goods.
The loonie was trading 0.2% lower at 1.39 per U.S. dollar, or 71.94 U.S. cents, after touching its highest level in more than two months on Monday at 1.3842.
Prime Minister Mark Carney spoke with U.S. President Donald Trump on Monday, Carney's office said, as Canada tries to hash out a last-minute deal to avert new 50% tariffs from taking effect at midnight on Wednesday. The new U.S. tariffs would cover about $20 billion worth of imports from Canada.
"A durable deal could see USD-CAD extend towards 1.37," strategists at Monex Europe said in a note. "Escalation risks a move back above 1.40 over coming days."
West Texas Intermediate oil futures rose 0.6% to $85.03 a barrel as prospects receded for a deal to end the Middle East war, heightening worries about prolonged energy supply disruptions. Oil is one of Canada's main exports.
Canadian home sales rose for a fourth straight month in July, increasing 0.5% from June, and prices edged higher.
"Canada's housing market is stabilizing, and we've probably found the floor for this long cycle," Robert Kavcic, a senior economist at BMO Capital Markets, said in a note.
Separate data for July showed that housing starts unexpectedly fell, declining 5% compared to the previous month.
Canadian government bond yields eased by two to three basis points across the curve, but only after the 30-year touched its highest level since January 2010 at 4.173%.
Long-term borrowing costs from the U.S. to Japan and Germany rose to their highest levels in decades, as renewed inflation worries added to lingering concerns about fiscal pressures across major economies, dealing bond markets a fresh blow.
Reporting by Fergal Smith; Editing by Paul Simao
