The Canadian dollar weakened against its U.S. counterpart on Tuesday as oil prices fell and the greenback broadly climbed, with the loonie extending its pullback from a nearly three-month high at the end of last week.
The price of oil, one of Canada’s major exports, retreated from two-month highs as concerns over a global economic slowdown crept back into the market and a stronger U.S. dollar also weighed. U.S. crude oil futures settled 1.7 per cent lower at $53.66 a barrel.
“There was a very brief tentative rally in crude prices and then that rally just completely evaporated around the middle of the day London time, and that appears to have taken the loonie with it,” said Ranko Berich, head of market analysis at Monex Canada and Monex Europe.
The U.S. dollar rose against a basket of major currencies as investors awaited President Donald Trump’s State of the Union address for a possible update on the U.S.-China trade war.
Canada is running a current account deficit as well as being a major commodities producer, so its economy could be hurt by an uncertain outlook for global trade.
At 3:24 p.m. (2024 GMT), the Canadian dollar was trading 0.2 per cent lower at 1.3133 to the greenback, or 76.14 U.S. cents. The currency, which on Friday touched its strongest intraday level in nearly three months at 1.3069, traded in a range of 1.3102 to 1.3153.
The decline for the loonie came ahead of Friday’s release of Canada’s employment report for January, which could help guide expectations for additional interest rate hikes from the Bank of Canada.
Money markets expect the Bank of Canada to keep rates on hold over the coming months after the central bank said in January that low oil prices, which have led to production cuts in Alberta, and a weak housing market harmed the economy in the fourth quarter of 2018 and will continue to do so in the first quarter of this year.
Canadian government bond prices were higher across a flatter yield curve in sympathy with U.S. Treasuries. The two-year rose 0.9 Canadian cents to yield 1.833 per cent and the 10-year climbed 16 Canadian cents to yield 1.944 per cent.