Canadian dollar hits 2-month low amid risk aversion, lower oil prices

TORONTO (Reuters) - The Canadian dollar hit a more than two-month low against its U.S. counterpart on Tuesday as oil prices fell and Italian political uncertainty boosted safe-haven assets, while investors awaited a Bank of Canada interest rate decision on Wednesday.

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/File Photo

At 4 p.m. EDT (2000 GMT), the Canadian dollar CAD=D4 was trading 0.2 percent lower at C$1.3014 to the greenback, or 76.84 U.S. cents. The currency touched its weakest since March 21 at C$1.3047.

“By and large the move in CAD today was reflective of the risk-off tone,” said Bipan Rai, North America head, FX Strategy at CIBC Capital Markets.

Investors piled into safe-haven bets as political turmoil in Italy sparked fears of another euro crisis, driving up the Japanese yen JPY= and pushing the U.S. dollar to a 10-month high against the euro EUR=.

The price of oil, one of Canada’s major exports, was pressured by expectations that Saudi Arabia and Russia could pump more crude to compensate for a potential supply shortfall.

U.S. crude oil futures CLc1 settled 1.7 percent lower at $66.73 a barrel.

Losses for the loonie came ahead of a Bank of Canada interest rate decision on Wednesday. The central bank will probably hold interest rates steady as indebted consumers and uncertain trade policy necessitate caution, a Reuters poll predicted.

The Canadian government said it will buy Kinder Morgan Ltd's KML.TO Trans Mountain oil pipeline for C$4.5 billion, hoping to save a project that faces formidable political and environmental opposition.

U.S. President Donald Trump is running out of time to deliver a revamp of the North American Free Trade Agreement (NAFTA) he promised for this year, and people involved in the talks say the crunch is largely of his administration’s own making.

Canada sends about 75 percent of its exports to the United States, so its economy could be hurt if NAFTA collapses.

Canadian government bond prices were higher across the yield curve in sympathy with U.S. Treasuries on a flight to quality. The two-year CA2YT=RR rose 17 Canadian cents to yield 1.848 percent and the 10-year CA10YT=RR climbed 103 Canadian cents to yield 2.188 percent.

The 10-year yield touched its lowest intraday since April 11 at 2.165 percent.

Reporting by Fergal Smith; editing by Jonathan Oatis and James Dalgleish