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Canadian dollar sees biggest weekly drop in five months as economic risk climbs

TORONTO (Reuters) - The Canadian dollar weakened to a seven-week low against its U.S. counterpart on Friday as rising economic and political uncertainties raised demand for safe-haven currencies, with the loonie losing ground for the third straight week.

U.S. and Canada Dollar notes are seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration

The loonie CAD= was trading 0.2% lower at 1.3385 to the greenback, or 74.71 U.S. cents. The currency touched its weakest intraday level since Aug. 4 at 1.3418.

For the week, the loonie was down 1.4%. That was its biggest weekly decline since April.

“Risk sentiment this month is not doing so well,” said Mazen Issa, a senior FX strategist at TD Securities. “I think it is pretty clear that we’re in a (U.S.) dollar firming tactical phase ... CAD has been a byproduct of that.”

The U.S. dollar .DXY extended its recent gains against a basket of major currencies as investors sought safety amid a slowing economic recovery, rising coronavirus infections in Europe and uncertainty surrounding the upcoming U.S. elections.

The Japanese yen JPY= and the Swiss franc CHF= also gained ground against major peers. Like the greenback, they are currencies that tend to benefit from volatile markets.

Worries that the resurgence in coronavirus cases would crush fuel demand weighed on the price of oil, one of Canada's major exports. U.S. crude oil futures CLc1 settled 0.2% lower at $40.25 a barrel.

Canada is also seeing a rise in infections. Ontario and Quebec, the country’s two most populous provinces, moved to clamp down further on social gatherings in a bid to slow a second wave sweeping across much of the country.

Canadian wholesale trade edged up 0.1% in August after jumping 4.3% in July, a flash estimate from Statistics Canada showed.

Canadian government bond yields were lower across much of a flatter curve, with the 10-year CA10YT=RR down 1.4 basis points at 0.543%.

Reporting by Fergal Smith; Editing by Paul Simao and Diane Craft

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