Canadian dollar pulls back from two-week high as U.S. stimulus prospects fade

TORONTO (Reuters) - The Canadian dollar weakened against the greenback on Tuesday as investor hopes for U.S. stimulus receded and data showed a slowdown in Canada’s merchandise trade, with the loonie pulling back from an earlier two-week high despite climbing oil prices.

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 fell sharply after President Donald Trump said he was calling off negotiations with Democratic lawmakers on coronavirus relief legislation until after the November election.

Canada sends about 75% of its exports to the United States, including oil. U.S. crude oil futures CLc1 settled 3.7% higher at $40.67 a barrel, supported by U.S. supply disruptions caused by an approaching hurricane in the Gulf of Mexico.

“Something that has been evident in the last month or so is that the path of least resistance for USD-CAD has been higher,” said Simon Harvey, FX market analyst for Monex Europe and Monex Canada.

“This has continued in today’s session, evidenced by the loonie following the broad G10 move lower against the (U.S.) dollar on a day where WTI rallies back above $40,” Harvey said.

The Canadian dollar CAD= was trading 0.2% lower at 1.3290 to the greenback, or 75.24 U.S. cents. It touched its strongest level since Sept. 21 at 1.3242 before turning lower.

Since the beginning of September, the loonie has fallen nearly 2%.

Canada’s exports and imports both fell in August, hinting that the momentum of the recovery from the COVID-19 crisis could have slowed more than anticipated, data from Statistics Canada showed.

Separate data showed that home sales in the area of Toronto, Canada’s most-populous city, rose 42% from a year ago, lifted by low borrowing costs and pent-up demand.

Canada’s employment report for September is due on Friday.

Canadian government bond yields were lower across a flatter curve on Tuesday, with the 10-year CA10YT=RR falling 4.6 basis points to 0.579%.

Reporting by Fergal Smith; Editing by Peter Cooney