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TORONTO (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Tuesday, pulling back from a nearly four-week high as lower crude oil prices and stock market losses weighed on the risk-sensitive commodity currency.
Oil prices CLc1 LCOc1 sank for a second day as hopes for a deal between OPEC and Russia on output cuts faded and concerns rose about mild winter weather dampening demand.
The loonie, as Canada's currency is colloquially known, had strengthened on Monday despite the lower oil price.
Stocks slid worldwide after three days of gains. Canada's main index .GSPTSE fell 1.8 percent, with its energy sector off 3.5 percent.
The Canadian dollar CAD=D4 ended the session at C$1.4027 to the greenback, or 71.29 U.S. cents, weaker than Monday's official close of C$1.3930, or 71.79 U.S. cents.
The move came against a broadly weaker greenback .DXY, which tumbled against the yen JPY= and slipped against the euro EUR= as oil's fall added to concerns about global economic growth.
Mazen Issa, a senior foreign exchange strategist at Toronto-Dominion Bank, said the Canadian currency appears comfortable trading in a C$1.40-C$1.45 range and that oil may be giving up some of its influence over the currency to U.S.-Canada interest rate spreads, which have tightened in recent days.
"It's still very much a fluid, raw risk, but it's very interesting to note the rate spreads growing in significance in terms of being a driver for the currency," Issa said.
Renewed pressure on oil prices has left the market fully discounting a July interest rate cut from the Bank of Canada after implying a 90 percent probability on Monday.
The currency had rebounded since touching its weakest since 2003 on Jan. 20 after the central bank kept rates on hold.
Fellow commodity currency the Australian dollar AUD=D4 fell after the country's central bank held rates steady while leaving the door open to further easing.
The Canadian currency's strongest level of the session was C$1.3940, while C$1.4082 was its weakest.
Canadian government bond prices were higher across the maturity curve on the flight to safety. The two-year CA2YT=RR price was up 8.5 Canadian cents to yield 0.377 percent and the benchmark 10-year CA10YT=RR surged C$1.03 to yield 1.118 percent.
The Canada-U.S. 2-year spread was 2.7 basis points less negative at -36.1 basis points as Treasuries outperformed at the front and the belly of the curve.
Canadian employment data for January and trade data for December are due on Friday, as are U.S. jobs data.
Additional reporting by Fergal Smith; Editing by W Simon and James Dalgleish