March 10, 2016 / 10:36 PM / in a year

Canadian dollar weakens, paring recent gains, as crude oil prices fall

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

TORONTO (Reuters) - The Canadian dollar fell against its U.S. counterpart on Thursday as lower oil prices weighed on the commodity-related currency amid broad market volatility a day after it hit a nearly four-month high.

The currency fell against a broadly weaker greenback as prices for oil, a major Canadian export, slid from a three-month high on doubts that producing countries could reach agreement to limit supply. [O/R]

The loonie, as Canada's currency is colloquially known, had touched its strongest since Nov. 12 at C$1.3230 on Wednesday after the Bank of Canada held its policy interest rate steady at 0.50 percent and refrained from action to erode the currency's recent sharp gains.

"Yesterday's move was overextended," said Stuart Rotman, a foreign exchange risk manager at Velocity Trade.

"It was somewhat bizarre that the Canadian dollar would move that much stronger on really no news," he added.

U.S. crude CLc1 prices settled at $37.84 a barrel, down 1.18 percent, although paring earlier losses in volatile trading. [O/R]

Wall Street reversed course and slipped into the red after European Central Bank President Mario Draghi signaled an end to further rate cuts. Earlier in the session, the ECB had unveiled a raft of measures to stimulate growth.

The Canadian dollar CAD=D4 ended at C$1.3346 to the greenback, or 74.93 U.S. cents, weaker than Wednesday's close of C$1.3250, or 75.47 U.S. cents.

The currency's strongest level of the session was C$1.3836, while its weakest was C$1.3941.

Canada's employment report due on Friday is expected to show the economy added 9,000 jobs in February after losing more than 5,000 the month before. ECONCA

Markets are also awaiting the March 22 federal budget. The new Liberal government is expected to run a big deficit and invest in infrastructure projects, while adding private-sector investment to projects could spur even greater spending.

An assessment of expected government measures will be incorporated into the Bank of Canada's economic projection in April.

Canadian government bond prices were lower across the maturity curve in sympathy with U.S. Treasuries and German Bunds.

The two-year CA2YT=RR price fell 7.5 Canadian cents to yield 0.566 percent and the benchmark 10-year CA10YT=RR was down 47 Canadian cents to yield 1.299 percent. The 10-year yield touched its highest since Jan. 22 at 1.336 percent.

In domestic data, industrial production capacity fell 0.5 percentage points to 81.1 percent in the fourth quarter, while new home prices rose 0.1 percent in January.

Reporting by Fergal Smith; Editing by Lisa Von Ahn and Diane Craft

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