By Anneken Tappe and Rachel Koning Beals

ICE U.S. Dollar Index on track for 0.3% decline on the week

The U.S. dollar rallied to its best level in a year against its Canadian rival Friday morning, thanks to sluggish Canadian economic data that underlined the fragility of Canada's economy.

But as the U.S. currency came off its highs, the loonie--as the Canadian dollar is also known--regained its footing.

The greenback last bought C$1.3278, compared with C$1.3316 late Thursday, having hit a high of C$1.3373 earlier. The ICE U.S. Dollar Index meanwhile, was down 0.2% at 94.535.

On the week, the index is down 0.3%, following a whopping 1.3% gain in the previous week.

Don't miss:Some companies are already warning investors that a strong dollar will pinch performance (http://www.marketwatch.com/story/some-companies-are-already-warning-investors-that-a-strong-dollar-will-pinch-performance-2018-06-22)

Friday morning's Canadian data showed May inflation at 0.05%, underperforming the forecast of 0.5%, while core inflation slowed to 1.9% for the 12 months ended in May, from 2.1% previously. Retail sales meanwhile contracted by 1.2% in April, versus the FactSet consensus forecast of a flat performance.

Stronger data would have likely bolstered expectations for tightening action from the Bank of Canada in July, said Scotiabank strategists Shaun Osborne and Eric Theoret in a note, but these hopes were disappointed.

The BOC has been having to deal with a lot of moving parts in making its monetary policy decisions, including its housing market, which hovers perpetually on the brink of crisis, as well as deteriorating international trade relations. Canada is the largest exporter of steel to the U.S. and was hit by President Donald Trump's first round of tariffs.

Moreover, it is a member of the North American Free Trade Agreement that connects it with Mexico and the U.S. Nafta has been in renegotiation since August 2017, and there is no end to talks in sight. Market participants expect it will be well into 2019 before an agreement is reached, unless the U.S. withdraws from the pact before.

Read:Here's what's next for Nafta, Mexico's peso and Canada's dollar (http://www.marketwatch.com/story/heres-whats-next-for-nafta-mexicos-peso-and-canadas-dollar-2018-06-02)

Also see:Trade spat means more pain in story for Canadian dollar: analyst (http://www.marketwatch.com/story/trade-spat-means-more-pain-in-store-for-canadian-dollar-analysts-2018-06-11)

Meanwhile, the group of Organization of the Petroleum Exporting Countries reached an agreement in principle to increase output (http://www.marketwatch.com/story/opec-reaches-tentative-deal-to-boost-output-reports-2018-06-22) by a nominal one million barrels a day on Friday. Oil futures, which at times guide Canada's currency due to the country's reliance on the energy industry, were up on Friday. Brent crude for August delivery settled at $75.44 a barrel, up 3.3%.

Check out:5 things investors need to know about OPEC's decision to lift oil output (http://www.marketwatch.com/story/5-things-investors-need-to-know-about-opecs-decision-to-lift-oil-output-2018-06-22)

Elsewhere, the euro reclaimed more ground Friday but found itself trapped between supportive economic data and the continuing trade spat with the U.S. The EU has said it would begin implementing tariffs (http://www.marketwatch.com/story/eu-to-impose-tariffs-on-32-billion-of-us-goods-starting-friday-2018-06-20) on $3.2 billion in U.S. imports on Friday.

Check out:Here's why a trade-war selloff won't spark intervention in China's yuan (http://www.marketwatch.com/story/theres-no-trade-war-panic-in-chinas-yuan-2018-06-19)

In response, President Trump threatened an additional 20% tariff on European car imports.

(https://twitter.com/realDonaldTrump/status/1010166772912320513)

At the same time, data showed stronger-than-expected French business activity, with a flash PMI reading of 56.4 versus expectations form 54.3, which helped the shared currency. The euro last bought $1.1660, up from $1.1604 late Thursday in New York.

Don't miss:What you need to know about Turkey's election this Sunday (http://www.marketwatch.com/story/what-you-need-to-know-about-turkeys-election-this-sunday-2018-06-21)

The data "keeps the hope that Q2's growth in Europe could be better than the Q1," said Naeem Aslam, analyst at Think Markets. "The strong French flash services data is also supporting the euro-dollar pair, there is clearly more momentum for the bulls today."

(END) Dow Jones Newswires

June 22, 2018 15:45 ET (19:45 GMT)