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TORONTO (Reuters) - The Canadian dollar fell to its lowest level in a week versus the greenback on Wednesday as potential fallout from a deteriorating U.S. economic picture dominated sentiment despite record high oil prices.
Canadian bond prices, with no economic data to consider, ended higher across the curve as investors flocked to less risky investments due to nagging U.S. recession fears.
The Canadian dollar closed at C$1.0190 to the U.S. dollar, or 98.14 U.S. cents, down from C$1.0133 to the U.S. dollar, or 98.69 U.S. cents, at Tuesday's close.
Earlier in the session, the currency fell to C$1.0220 to the U.S. dollar, or 97.85 U.S. cents, its lowest level since April 2.
The latest fall for the commodity-linked Canadian dollar -- it has closed lower in four straight sessions -- came despite a rise in oil prices on Wednesday to more than $112 a barrel.
Lingering concerns about the credit market weighed on the U.S. dollar and dragged the Canadian dollar along for the ride since the Canadian economy relies on the United States as a market for the bulk of its exports.
"What we've got is a weak U.S. dollar and as opposed to that having a positive impact on Canada it actually had a negative impact because of the fear that the U.S. slowdown is going to spill over more definitively into Canada," said David Watt, senior currency strategist at RBC Capital Markets.
Watt said the Canadian dollar did not rally on the higher oil prices because the surge was not triggered by investors who feel confident that the global economic outlook is improving, a situation that normally would support the currency of a country that is considered a key oil exporter.
Canadian bond prices followed the bigger U.S. Treasury market to a higher close on concern about a prolonged and severe economic downturn in the Unites States.
The economic concerns have put interest rates futures at about a 40 percent chance that U.S. Federal Reserve will cut its fed funds rate by another half percentage point at its April 29-30 meeting.
"There's just a general malaise on Wall Street, the fear of mounting layoffs, weak consumer spending and just a general bad picture being reflected in Treasuries spilling over to Canadian government bonds," said Max Clarke, economist at IDEAglobal in New York. "So I think it's just generally CGBs moving lock step with Treasuries on general U.S. economic weakness."
With no top-tier Canadian data due out for the remainder of the week, the bond market's performance will most likely be influenced by events in the United States.
The remaining Canadian data due out this week are February trade figures on Thursday and February's new housing price index, due out on Friday.
The two-year bond rose 16 Canadian cents to C$102.18 to yield 2.694 percent. The 10-year bond climbed 46 Canadian cents to C$103.43 to yield 3.556 percent.
The yield spread between the two- and 10-year bonds was 86.2 basis points, up from 84.3 basis points at the previous close.
The 30-year bond jumped 70 Canadian cents to C$116.1572 to yield 4.073 percent. In the United States, the 30-year treasury yielded 4.370 percent.
The three-month when-issued T-bill yielded 2.31 percent, up from 2.19 percent at the previous close.
Editing by Peter Galloway