TORONTO/OTTAWA (Reuters) - The Canadian dollar weakened against the greenback on Tuesday, hitting its lowest level in more than three weeks as the commodity-sensitive currency was stung by a further fall in oil prices.
Some weak U.S. economic data, including a drop in the gauge of business plans, also took some steam out of the loonie. The United States is Canada’s biggest trading partner by far and policymakers are looking for a pickup south of the border to help support Canada’s economy.
The day’s drop saw the Canadian dollar breach resistance around the C$1.32 level. U.S. crude CLc1 prices settled down 78 cents to $43.20 a barrel amid a persistent global supply glut.
There has been “a pretty material decline in oil the last couple days,” said Don Mikolich, executive director of foreign exchange sales at CIBC World Markets. “We keep holding up $40 as a bit of a bottom there, but it certainly has dragged the Canadian dollar down with it.”
The Canadian dollar CAD=D4 ended the North American trading session at C$1.3266 to the greenback, or 75.38 U.S. cents, weaker than Tuesday’s close of C$1.3163, or 75.97 U.S. cents.
Markets were also turning their attention to the U.S. Federal Reserve’s interest rate decision on Wednesday. While the central bank is expected to hold rates steady, investors will be looking for any clues as to whether the Fed will still begin hiking rates this year as it had planned.
“We’ll see what kind of tone comes from the Fed announcement tomorrow and I think that will set direction for the next couple of months,” said Mikolich.
Canadian government bond prices were higher across the maturity curve, with the two-year CA2YT=RR price up 5 Canadian cents to yield 0.493 percent and the benchmark 10-year CA10YT=RR rising 23 Canadian cents to yield 1.418 percent.
The Canada-U.S. two-year bond spread was -11.9 basis points, while the 10-year spread was -61.5 basis points.
Reporting by Alastair Sharp and Leah Schnurr; Editing by Alan Crosby