TORONTO, Aug 20 (Reuters) - The Canadian dollar touched a near three-month high against its U.S. counterpart on Thursday and bond yields rose as investors weighed higher oil prices and prospects for a trade deal between the U.S. and Canada.
The loonie was trading 0.1% higher at 1.3790 per U.S. dollar, or 72.52 U.S. cents, after touching its strongest intraday level since May 21 at 1.3757.
Higher oil prices and broad-based U.S. dollar weakness linked to concern about rising U.S. government debt were the main factors supportive of the currency, said Darren Richardson, chief operating officer at Vantry Capital Inc.
Total U.S. debt has topped $40 trillion for the first time, the Treasury Department said on Wednesday.
The U.S. dollar (.DXY), opens new tab edged higher against a basket of major currencies after it was pressured on Wednesday by the Treasury Department's move to calm a bond market selloff.
The price of oil, one of Canada's major exports, rose after U.S. President Donald Trump warned of retaliation against nations supporting Iran. U.S. crude oil futures were trading 2% higher at $87.50 a barrel.
Top trade negotiators from Canada and the U.S. will meet for the second day running in Washington on Thursday in a bid to finalize a trade deal that could help reduce months of tariffs and counter duties.
"There is some optimism there but I think the market is a bit exhausted when it comes to trade," Richardson said.
Canadian bond yields moved higher across the curve, tracking moves in U.S. Treasuries. The 10-year was up 5.8 basis points at 3.752%, after earlier touching its highest level since May 2024 at 3.760%.
Over the past month or so, the 10-year has increased about 19 basis points, which is the most among G7 sovereign bonds, as data pointed to recovery in the domestic economy after a slow start to the year.
Canadian retail sales data for June, due on Friday, could offer additional clues on the state of the domestic economy. Economists forecast a month-over-month gain of 0.4%.
Reporting by Fergal Smith; Editing by Nia Williams
