C$ weakens to five-week low as oil and stocks fall

TORONTO (Reuters) - The Canadian dollar fell on Tuesday, touching its weakest level in five weeks against its U.S. counterpart as a drop in stock and commodity markets weighed on the risk-sensitive commodity-linked currency.

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 stock markets and energy prices fell after energy producers and consumers predicted an oil glut was likely to persist well into next year.

U.S. crude CLc1 prices settled $1.39 lower at $44.90 a barrel. [O/R]

A capitulation of investor bets that reach for yield added to pressure on higher yielding commodity currencies, such as the Canadian dollar, said Mazen Issa, senior fx strategist at TD Securities.

The commodity-linked Canadian dollar CAD=D4 ended at C$1.3170 to the greenback, or 75.93 U.S. cents, much weaker than the Bank of Canada's official close on Monday of C$1.3049, or 76.63 U.S. cents.

The currency’s strongest level of the session was C$1.3030, while it touched its weakest since Aug. 9 at C$1.3190.

The Canadian dollar underperformed many major currencies, although it gained against fellow commodity currencies, the Australian and New Zealand dollars, as well as some emerging market currencies, such as the Brazilian real and the Mexican peso.

Canada can lead the process of global economic recovery by setting standards for other countries to aspire to, the International Monetary Fund’s Managing Director Christine Lagarde said.

Canadian government bond prices were lower across a steeper yield curve in sympathy with U.S. Treasuries. The two-year CA2YT=RR price fell 2.5 Canadian cents to yield 0.599 percent and the benchmark 10-year CA10YT=RR declined 68 Canadian cents to yield 1.229 percent.

The 10-year yield touched its highest since June 23 at 1.250 percent.

The U.S. dollar .DXY was broadly higher, recovering ground lost in the previous session following a speech by Federal Reserve policymaker Lael Brainard that solidified the view that U.S. interest rates are unlikely to rise this month.

Bank of Canada Senior Deputy Governor Carolyn Wilkins will speak on Wednesday. After the Bank of Canada struck a dovish tone in its most recent policy statement, investors will look for insight into how the central bank now sees the Canadian economy faring in the second half of the year.

Reporting by Alastair Sharp; Editing by Nick Zieminski and David Gregorio