Canadian dollar steadies as investors reassess Fed outlook



* Canadian retail sales fall 5.7% in April

* Price of U.S. oil settles 0.3% higher

* Canadian 10-year yield rises 2.2 basis points to 1.429%

By Fergal Smith

TORONTO, June 23 (Reuters) - The Canadian dollar was little changed against its U.S. counterpart on Wednesday, holding on to this week's gains as oil rose and Federal Reserve Chair Jerome Powell reassured markets that the U.S. central bank won't rush to hike interest rates.

Markets were rattled last week when the Fed shifted to more hawkish guidance. But Powell on Tuesday said the economic recovery from the COVID-19 crisis needed more time before higher borrowing costs are appropriate, remarks that weighed on the U.S. dollar.

The recovery this week for the Canadian dollar reflects the pullback in the U.S. dollar and moves in U.S. rates, said Amo Sahota, director at Klarity FX in San Francisco.

"We never really saw a tightening between U.S. and CAD yield spreads to support" the loonie's move lower, Sahota said.

The gap between Canada's 5-year yield and its U.S. equivalent was at 9.4 basis points in favor of the Canadian bond, up about 3 basis points since the Fed's release last Wednesday of its latest policy statement and economic projections.

The price of oil, one of Canada's major exports, rose after data showed U.S. crude inventories has declined as travel has picked up.

U.S. crude oil futures CLc1 settled 0.3% higher at $73.08 a barrel, while the Canadian dollar CAD= was trading nearly unchanged at 1.2303 to the greenback, or 81.28 U.S. cents.

The currency gained ground on Monday and Tuesday, clawing back some of its decline from last week.

Canadian retail sales fell by 5.7% in April from March, Statistics Canada said. A flash estimate showed sales were down 3.2% in May.

"The retail sales, while disappointing, can be viewed as old news," Sahota said. "With the (COVID-19) vaccinations going reasonably well, the market expects and initial data is showing a decent return to activity for June."

Canadian government bond yields were mixed across a steeper curve, with the 10-year CA10YT=RR up 2.2 basis points at 1.429%.
Reporting by Fergal Smith; Editing by Jonathan Oatis and Paul Simao

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