Canadian dollar weakens as oil falls, stocks slump

Mon Feb 8, 2016 4:59pm EST
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By Alastair Sharp

TORONTO (Reuters) - The Canadian dollar lost ground against its U.S. counterpart on Monday as a sell-off in stocks and a drop in oil prices weighed on the risk-sensitive commodity currency, while Canada's 10-year government bond yield hit a record low.

Investors shed risky assets as worries persisted over the pace of global growth.

The weakness was muted by the greenback's own slip against a basket of currencies, pressured by a view that the Federal Reserve would be cautious with its plan to raise U.S. interest rates.

The Canadian dollar CAD=D4 ended the session trading at C$1.3934 to the greenback, or 71.77 U.S. cents, weaker than Friday's official close of C$1.3908, or 71.90 U.S. cents.

The loonie, as Canada's currency is colloquially known, has traded in a wide range so far this year, starting at C$1.38 before slumping to almost C$1.47 in mid-January and then recovering to as strong as C$1.3640 last week.

The currency will likely remain volatile in coming weeks given the potential for swings in the price of oil, a major Canadian export, according to Matt Perrier, managing director of foreign exchange sales at Bank of Montreal.

"If we were to see crude fall back into the mid-$20s (a barrel) then I wouldn't be surprised to see dollar/Canada trade back up in the C$1.43-C$1.44 area," Perrier said.

If oil instead approaches $40 a barrel the Canadian currency could test levels around C$1.35, he said.   Continued...

A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015. REUTERS/Mark Blinch