The U.S. dollar fell against a basket of major currencies after the BoJ's move to widen the allowable band for long-term yields around its 0% target boosted the yen and sent yields on Japanese government bonds sharply higher.
The reaction of stock and commodity markets to the BoJ policy shift "has been driving a bunch of volatility in USD-CAD today, but not with much of a clear directional trend," said Jay Zhao-Murray, market analyst at Monex Canada Inc. "People want to square up before major event risk."
Canada's consumer price index report for November, due on Wednesday, is expected to show the annual rate of inflation easing to 6.7% in November from 6.9% in October.
Money markets see roughly a 40% chance that the BoC will raise interest rates further at its Jan. 25 policy decision.
The Canadian dollar was trading 0.2% higher at 1.3615 to the greenback, or 73.45 U.S. cents, after touching its strongest level since last Thursday at 1.3581.
Canadian retail sales grew by 1.4% in October from September, close to expectations. Volumes were less robust, posting a flat monthly reading, and a preliminary estimate showed sales falling 0.5% in November.
Oil, one of Canada's major exports, settled unchanged at $75.19 a barrel, with the price capped by the prospect of a major U.S. winter storm.
Canadian yields rose across a steeper curve, tracking the move in JGBs and other core sovereign bond markets.
The 10-year touched its highest since Nov. 30 at 3.020% before dipping to 3.010%, up 11.4 basis points on the day.
(Reporting by Fergal Smith; Editing by Leslie Adler)
By Fergal Smith
