C$ weakens to one-week low; pares losses as oil turns higher

TORONTO (Reuters) - The commodity-linked Canadian dollar weakened to a one-week low against its U.S. counterpart on Wednesday, although some losses were pared as oil prices turned higher.

Canadian currency in the form of one dollar coins, otherwise known as loonies, are displayed in this posed photograph in Toronto, October 22, 2008. REUTERS/Mark Blinch

U.S. crude oil rebounded from two-month lows after the U.S. government reported a ninth straight week of crude inventory draws, easing some concerns in a market worried about a glut. U.S. crude oil futures CLc1 settled up 29 cents at $44.94 a barrel.

The U.S. dollar set a four-month high against a basket of major currencies, helped by recent firm domestic data and a rebound in Treasury yields from the lows seen in the wake of Britain’s vote to leave the European Union.

“I don’t think we are back to the pre-Brexit highs on U.S. interest rates, but we’ve retraced back a lot of that ground ... I think that’s really what’s helping drive the U.S. dollar and giving dollar-Canada its slight uplift today,” said Amo Sahota, director at Klarity FX.

The Canadian dollar CAD=D4 ended at C$1.3055 to the greenback, or 76.60 U.S. cents, weaker than Tuesday's close of C$1.3028, or 76.76 U.S. cents.

The currency’s strongest level of the session was C$1.3014, while it touched its weakest since July 12 at C$1.3097.

Uncertainty over Britain’s looming exit from the European Union prompted the IMF to cut its global growth forecasts for the next two years.

Its forecast for Canada was cut by 0.1 percentage point to 1.4 percent for 2016. However, the IMF now expects Canada’s economy will grow 2.1 percent in 2017, 0.2 percentage point more than its previous projection in April.

Canadian government bond prices were lower across the maturity curve in sympathy with U.S. Treasuries as a view developed that the Federal Reserve could raise interest rates at least once this year.

The two-year CA2YT=RR price fell 7 Canadian cents to yield 0.607 percent, while the 10-year CA10YT=RR fell 43 Canadian cents to yield 1.123 percent.

The two-year yield touched its highest since June 24 at 0.609 percent as the market digested new supply. Some C$3.9 billion of the 0.500 percent bond due August 2018 was sold at auction at an average yield of 0.605 percent.

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

Reporting by Fergal Smith; Editing by W Simon and Alan Crosby