Canadian dollar hits nine-day low before paring losses on trade optimism

TORONTO (Reuters) - The Canadian dollar weakened to its lowest in more than one week against the greenback as oil prices fell, but the currency pared losses as investors weighed a possible end to the U.S.-China trade war.

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

U.S. stocks advanced as a Wall Street Journal report that the United States was considering lifting tariffs on Chinese imports eased investor worries.

Canada runs a current account deficit and exports many commodities including oil, so its economy could benefit from improved global trade.

Oil was pressured by fears about surging U.S. crude production and a weakening global economy. U.S. crude oil futures CLc1 settled 0.5 percent lower at $52.07 a barrel.

At 3:37 p.m. (2037 GMT), the Canadian dollar CAD=D4 was trading 0.1 percent lower at 1.3272 to the greenback, or 75.35 U.S. cents. The currency touched its lowest since Jan. 8 at 1.3319.

The loonie had strengthened as much as 3.5 percent since the beginning of 2019 before giving up some gains in recent days.

The loonie’s rally at the start of the year was “overdone,” said Scott Lampard, head of global markets at HSBC Bank Canada, adding that the U.S. Federal Reserve would be more active than the Bank of Canada in raising interest rates because of the stronger U.S. economy.

Canada’s economy is clawing its way through a soft patch, which will delay the next interest rate hike until at least April, according to economists polled by Reuters who said the Bank of Canada would be less aggressive in tightening credit this year.

Canada lost 13,000 jobs in December, driven by hiring declines in the trade, transportation and utilities and construction sectors, according to an ADP report released on Thursday. The November total jobs added was revised up to 74,000 from 39,100, ADP said.

Canada’s inflation report for December is due on Friday.

Canadian government bond prices were mixed across a steeper yield curve, with the two-year CA2YT=RR up 1 Canadian cent to yield 1.914 percent, and the 10-year CA10YT=RR falling 3 Canadian cents to yield 1.999 percent.

The gap between Canada’s 2-year yield and its U.S. equivalent widened by 3.5 basis points to a spread of 66.2 basis points in favor of the U.S. bond.

Reporting by Fergal Smith; Editing by Nick Zieminski and Richard Chang