January 7, 2020 / 2:43 PM / 2 months ago

Canadian dollar weakens to one-week low as oil pulls back

TORONTO (Reuters) - The Canadian dollar weakened to a one-week low against its U.S. counterpart on Tuesday, as oil prices fell and investors turned attention to domestic jobs data later in the week that could guide expectations for the Bank of Canada interest rate outlook.

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

At 4:06 p.m. (2106 GMT), the Canadian dollar CAD= was trading 0.3% lower at 1.3005 to the greenback, or 76.89 U.S. cents. The currency hit its weakest intraday level since New Year’s Eve at 1.3029.

The price of oil, one of Canada’s major exports, surrendered some recent gains as investors reconsidered the likelihood of immediate supply disruptions in the Middle East after the United States killed a top Iranian military commander last week. U.S. crude oil futures CLc1 settled 0.9% lower at $62.70 a barrel.

The pullback in oil prices weighed on the loonie after the currency had “a pretty overextended move” in recent days, said Erik Nelson, a currency strategist at Wells Fargo.

Last Tuesday, the Canadian dollar notched a 14-month high at 1.2947.

The decline for the loonie on Tuesday came as official data showed that Canada’s exports and imports both declined in November and as separate data showed that purchasing managers were less active in December..

Bank of Canada Governor Stephen Poloz is due to speak on Thursday, while Canada’s jobs data for December is due on Friday. In November, the Canadian job market shed more than 71,000 positions.

“It seems for now the BoC is on hold,” Nelson said. “With just one month of weak employment it is hard to say they are going to change (interest rates) but if we get another bad number on Friday it could be a different story.”

The central bank left its benchmark interest rate on hold at 1.75% in 2019 even as some other major central banks, such as the Federal Reserve and the European Central Bank, eased.

Canadian government bond prices were mixed across the yield curve, with the two-year CA2YT=RR flat to yield 1.641% and the 10-year CA10YT=RR rising 4 Canadian cents to yield 1.583%.

Reporting by Fergal Smith; editing by Jonathan Oatis, Nick Zieminski and David Gregorio

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