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The Canadian dollar weakened against its U.S. counterpart on Thursday as Wall Street’s main indexes tumbled and data showed a widening in Canada’s trade deficit, with the loonie posting its biggest decline in more than two months.

The loonie was trading 0.7 per cent lower at 1.3130 to the greenback, or 76.16 U.S. cents, which was its largest sell-off since June 24. The currency, which notched a near eight-month high of 1.2990 on Tuesday, traded in a range of 1.3040 to 1.3161.

“The Canadian dollar has been a proxy for risk assets since the middle of March,” said Andrew Cherry, head of global markets at HSBC Bank Canada. “With the equity market being off today ... it sets up that story where I think CAD is going to have a bit of a selloff going forward in the near term.”

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U.S. equity markets headed for their worst day since June as investors dumped high-flying technology-focused stocks.

Canada runs a current account deficit and is a major producer of commodities, including oil, so the loonie tends to be sensitive to the global flow of trade and capital.

U.S. crude oil futures settled 0.3 per cent lower at $41.37 a barrel as U.S. unemployment data fed fears of a slow economic recovery.

Canada posted a trade deficit of $2.45 billion in July as imports climbed faster than exports, data from Statistics Canada showed. June’s deficit was revised lower to $1.59 billion.

Canada’s employment report for August is due on Friday, which could offer clues on the strength of economic recovery.

Canadian government bond yields eased across much of a flatter curve in sympathy with U.S. Treasuries. The 10-year fell 2.1 basis points to 0.530 per cent, having touched its lowest intraday level since Aug. 11 at 0.518 per cent.

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