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C$ slides as rising U.S. COVID-19 cases crimp risk appetite

TORONTO (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Thursday as investors worried that rising coronavirus cases in the United States could slow economic recovery, with the loonie pulling back from an earlier one-week high.

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

The S&P 500 slipped from a five-week high after a jump in coronavirus caseloads that has forced California and other states to shut down again.

“It still remains a story of equities and risk sentiment” for the Canadian dollar, said Christian Lawrence, a senior market strategist at Rabobank.

Canada runs a current account deficit and is a major exporter of commodities, including oil, so the loonie tends to be sensitive to the global flow of trade and capital.

U.S. crude futures settled 1.1% lower at $40.75 a barrel after OPEC and other producers agreed to ease record supply curbs from August.

The Canadian dollar was trading 0.5% lower at 1.3575 to the greenback, or 73.66 U.S. cents. The currency touched its strongest intraday level since last Thursday at 1.3498.

Canada’s historic budget deficit for this year, projected just over a week ago to top C$340 billion, may be even higher if the more pessimistic Bank of Canada growth forecast delivered on Wednesday turns out to be right, analysts said.

The central bank said that Canada’s economic activity would not return to pre-pandemic levels until 2022 and signaled its benchmark interest rate could stay at 0.25% until 2023.

Bank of Canada Governor Tiff Macklem “gave the clearest guidance we’ve heard in years and the Bank’s central scenario was relatively cautious,” Lawrence said.

Canada added more than 1 million jobs in June after shedding nearly 3 million in May, a report from payroll services provider ADP showed.

Canadian government bond yields were lower across a flatter curve, with the 10-year down 3.4 basis points at 0.504%.

Reporting by Fergal Smith; Editing by Jonathan Oatis and Peter Cooney

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