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Canadian dollar dips as investors assess commodity-linked currency bets

A loonie is pictured in North Vancouver, in April 2014.

The Canadian dollar edged lower against its U.S. counterpart on Tuesday as investors assessed bets on commodity-linked currencies and weighed gloomy remarks by Canada's chief negotiator at talks to modernize NAFTA.

At 4 p.m. EST (2100 GMT), the Canadian dollar was trading 0.1 per cent lower at $1.2595 to the greenback, or 79.40 U.S. cents. The currency traded in a range of $1.2567 to $1.2625.

The loonie, which has fallen 2.6 per cent since the sell-off on Wall Street began earlier this month, lagged the performance of some other major currencies, including the euro and the yen. Fellow commodity-linked currency, the Australian dollar, also underperformed.

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"A lot of it has to do with position squaring and how sensitive these (commodity-linked) currencies are to global risk markets." said Bipan Rai, Executive Director and Senior Macro Strategist at CIBC Capital Markets.

On Friday, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed that speculators raised bullish bets on the Canadian dollar for the fifth straight week.

Investors that have made bullish bets on a currency could be vulnerable to losses if other investors that are long choose to cut or exit their positions.

Talks to revamp the $1.2-trillion North American Free Trade Agreement had achieved little progress on major issues so far, Canada's chief negotiator Steve Verheul said.

Canada sends about 75 per cent of its exports to the United States.

The price of oil, one of Canada's major exports, dipped after the International Energy Agency forecast supply could outstrip demand. U.S. crude oil futures settled 0.2 per cent lower at $59.19 a barrel.

Canadian government bond prices were higher across the yield curve, with the two-year up 0.5 Canadian cent to yield 1.781 per cent and the 10-year rising 14 Canadian cents to yield 2.32 per cent.

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The Canadian Real Estate Association will release its monthly home sales report on Thursday. Canada's manufacturing sales report for December is due on Friday.

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