Loonie slips to two-month low as recent slump in oil weighs

TORONTO (Reuters) - The Canadian dollar weakened to a two-month low against its U.S. counterpart on Wednesday as the greenback broadly climbed and a recent slump in the price of oil, due to the coronavirus outbreak in China, weighed.

FILE PHOTO - A Canada Dollar note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration

At about $51 a barrel, after rallying on Wednesday, the price of oil CLc1 is trading about 22% below its January peak and $9 below the level that the Bank of Canada assumed last month in its forecasts. Oil is one of Canada's major exports.

The “overriding factor” pressuring the Canadian dollar has been oil, said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets.

If oil were to stay at current levels it could become a concern for the Bank of Canada, Chandler said.

An outbreak of coronavirus that has rattled financial markets and infected thousands in China could hurt Canada’s economy by disrupting supply chains and depressing oil prices, Bank of Canada Senior Deputy Governor Carolyn Wilkins told a business audience in Toronto.

Last month, the central bank said a future cut was possible should a recent slowdown in domestic growth persist.

At 3:37 p.m. (2037 GMT), the Canadian dollar CAD=D4 was trading 0.1% lower at 1.3291 to the greenback, or 75.24 U.S. cents. The currency, which has fallen 2.3% since the start of the year, touched its weakest intraday level since Dec. 3 at 1.3304.

Canada posted a smaller-than-expected trade deficit of C$370 million in December as the value of exports increased 1.9%, official data showed. It follows data on Friday showing surprise growth in Canada’s economy in November.

“The economy may have been on a slightly better footing around the turn of the year than had been feared,” said Ryan Brecht, a senior economist at Action Economics.

The Canadian dollar will climb over the coming year, recouping much of its recent decline, as the economic threat from the virus outbreak in China likely fades, and some analysts do not expect the Bank of Canada to cut interest rates in 2020, a Reuters poll of analysts showed.

Reports of a treatment to fight the coronavirus and a strong U.S. private-sector jobs report helped boost stocks .WORLD globally, the U.S. dollar .DXY against some safe-haven currencies and the yields of core sovereign debt, including Canadian government bonds.

Canada's 10-year yield, CA10YT=RR, which on Monday hit a near four-month low at 1.252%, was up 5.6 basis points at 1.389%.

Reporting by Fergal Smith; Editing by Steve Orlofsky and Sandra Maler