C$ weakens to six-day low as commodity currencies retreat

TORONTO (Reuters) - The Canadian dollar weakened to a nearly one-week low against its U.S. counterpart on Tuesday, tracking losses for fellow commodity currencies as oil prices fell and a recent improvement in risk appetite stalled.

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

World shares dipped for only the second time in nine days, sapped by the drop in oil prices and by data that showed Britain’s vote to quit the European Union has done serious damage to German economic confidence.

“There’s definitely a sense of exhaustion in terms of what we’ve seen coming out of the Brexit (vote),” said Eric Theoret, a currency strategist at Scotiabank.

Officials and policymakers had stoked fears about the economic risks of leaving the economic bloc ahead of the vote, Theoret said, and then had to backtrack when the leave camp won.

“If we look at the sequence, it was fear-mongering, panic, policymakers stepping in to say ‘we’ve got this, we can provide support,’ and the market made new all-time highs in terms of equities,” he said.

Brexit is expected to dominate a meeting of Group of 20 finance ministers in China this week, a Canadian official said on Monday.

Oil prices fell on Tuesday amid concerns over a global supply glut.

The commodity-linked Australian and New Zealand dollars fell as investors ramped up bets that central banks in Australia and New Zealand could ease monetary policy as early as next month.

The risk-sensitive Canadian dollar CAD=D4 settled at C$1.3028 to the greenback, or 76.76 U.S. cents, weaker than Monday's close of C$1.2937, or 77.30 U.S. cents.

The currency’s strongest level of the session was C$1.294, and it also hit its weakest level since July 13, at C$1.3053.

Last week, the loonie rose 0.8 percent as a somewhat optimistic update from the Bank of Canada lowered expectations for an interest rate cut.

The implied probability of a rate cut this year has fallen below 10 percent, overnight index swaps data showed, down from above 30 percent in the week after the Brexit vote.

Canadian government bond prices rose marginally across the maturity curve, with the two-year CA2YT=RR price up 1 Canadian cent to yield 0.574 percent and the benchmark 10-year CA10YT=RR rising 22 Canadian cents to yield 1.077 percent.

Earlier in the session the 10-year yield touched its highest level since June 27 at 1.150 percent, extending its rebound from a five-month low on July 11 at 0.935 percent.

Canadian retail sales data for May and inflation data for June are due on Friday.

Additional reporting by Fergal Smith; Editing by Meredith Mazzilli and Leslie Adler