October 29, 2018 / 2:25 PM / 22 days ago

Canadian dollar weakens for third straight day as stocks and oil slide

TORONTO (Reuters) - The Canadian dollar weakened for the third consecutive day against its U.S. counterpart on Monday as stocks and oil prices declined, while the greenback broadly climbed.

FILE PHOTO: Canadian Loonies, otherwise known as a one dollar coin, are displayed on top of an American currency in this posed photograph in Toronto, Ontario, Canada, October 10, 2008. REUTERS/Mark Blinch/File Photo

U.S. stocks fell in a volatile session, hurt by fresh worries of an escalation of the U.S.-China trade war and a sharp drop in big tech and internet names.

“The Canadian dollar tends to be more risk sensitive, so (I am) not surprised to see it lower,” said Erik Nelson, a currency strategist at Wells Fargo.

Canada runs a current account deficit and exports many commodities, including oil, so its economy could be hurt if the global flow of trade or capital slows.

Oil prices fell after Russia signaled that output will remain high and as concern over the global economy fueled worries about demand for crude. U.S. crude oil futures CLc1 settled 0.8 percent lower at $67.04 a barrel.

The U.S. dollar .DXY climbed against a basket of currencies. News that German Chancellor Angela Merkel will not seek re-election as head of her CDU party weighed on the euro.

At 4:48 p.m. (2048 GMT), the Canadian dollar CAD=D4 was trading 0.2 percent lower at 1.3129 to the greenback, or 76.17 U.S. cents.

The currency, which on Friday hit a six-week low intraday at 1.3160, traded in a range of 1.3083 to 1.3149.

The loonie got a boost last Wednesday from a Bank of Canada interest rate hike but has lost ground on the three subsequent days of trading.

The central bank raised interest rates for the fifth time since July 2017 and said it might speed up the pace of future hikes given that the economy was running at almost full capacity and did not need any stimulus.

Speculators have cut bearish bets on the Canadian dollar to the lowest since March, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed on Friday. As of Oct. 23, net short positions had decreased to 7,228 contracts from 11,019 a week earlier.

Canadian government bond prices were mixed across the yield curve, with the two-year CA2YT=RR up 0.5 Canadian cent to yield 2.264 percent and the 10-year CA10YT=RR falling 1 Canadian cent to yield 2.396 percent.

The gap between Canada’s 2-year yield and its U.S. equivalent widened by 1.4 basis points to a spread of 55.8 basis points in favor of the U.S. bond.

Reporting by Fergal Smith; Editing by Frances Kerry and Phil Berlowitz

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