Canadian dollar hits 19-month low as risk aversion offsets GDP gain

TORONTO (Reuters) - The Canadian dollar fell to a 19-month low against its broadly stronger U.S. counterpart on Friday, as declines for stocks and the price of oil offset data showing stronger-than-expected growth in the domestic economy.

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

At 4:00 p.m. (2100 GMT), the Canadian dollar CAD=D4 was trading 0.7 percent lower at 1.3598 to the greenback, or 73.54 U.S. cents. The currency touched its weakest level since May 2017 at 1.3601.

For the week, the loonie was down 1.6 percent, its biggest drop since June.

“We are seeing an extremely orderly move but a weakening Canadian dollar, as would be expected with lower oil prices and deteriorating risk appetite,” said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York.

Wall Street stocks fell in volatile trading amid concerns of slowing growth and a looming U.S. government shutdown.

Canada exports many commodities, including oil, and runs a current account deficit, so its economy could be hurt if the global flow of trade or capital slows.

The price of oil extended its recent drop as global oversupply kept buyers away from the market ahead of upcoming holidays. U.S. crude oil futures CLc1 settled 0.6 percent lower at $45.59 a barrel.

Still, the loonie performed better than most other G10 currencies, including the oil-linked Norwegian krone.

Speculators have cut their bearish bets on the Canadian dollar for the second straight week, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed. As of Dec. 18, net short positions had fallen to 7,457 contracts from 11,669 a week earlier.

Canada’s economy expanded at a faster-than-expected 0.3 percent pace in October, but evidence of economic momentum heading into the end of the year may not be enough to shift the Bank of Canada from the sidelines due to the recent slump in oil prices.

Canadian companies expect sales growth to stabilize over the next year, and say labor pressures and various tariffs mean input and output prices will start to rise more quickly, a Bank of Canada survey said.

Canadian government bond prices were lower across a flatter yield curve, with the two-year CA2YT=RR down 4 Canadian cents to yield 1.947 percent and the 10-year CA10YT=RR falling 9 Canadian cents to yield 2.025 percent.

The gap between Canada’s two-year yield and its U.S. equivalent narrowed by 5.2 basis points to a spread of 69.4 basis points in favor of the U.S. bond.

Reporting by Fergal Smith; Editing by Steve Orlofsky and Jonathan Oatis