By Fergal Smith
TORONTO (Reuters) - The Canadian dollar weakened against the greenback on Tuesday as a move higher in U.S. bond yields weighed on investor sentiment, with the loonie pulling back from its strongest level in nearly three weeks.
The loonie was trading 0.4% lower at 1.2680 to the greenback, or 78.86 U.S. cents. The currency touched its strongest level since Sept. 10 at 1.2593, while its weakest was 1.2707.
"The risk-off backdrop, a broadly stronger USD, and an oil slump from three-month highs have weighed on the CAD," Ronald Simpson, managing director, global currency analysis at Action Economics, said in a note.
Wall Street stocks tumbled in a broad sell-off as the upward trajectory of U.S. Treasury yields and deepening inflation concerns dampened risk appetite and sent investors fleeing the equities market.
U.S. Treasury yields have surged since the end of last week, after the Federal Reserve said it would likely begin reducing its monthly bond purchases as soon as November and hinted that interest rate hikes may follow.
The U.S. dollar advanced to its highest level in nearly 11 months against a basket of major currencies, while the price of oil, one of Canada's major exports, settled 0.2% lower at $75.29 a barrel after touching its highest since July 6 earlier in the day.
Canadian payroll employment rose by 324,800 in July as the easing of COVID-19 restrictions bolstered services-producing jobs. GDP data for July is due on Friday, which could offer further clues on the strength of the domestic economy.
Canadian government bond yields were higher across a steeper curve, tracking the move in U.S. Treasuries. The 10-year touched its highest level since June 4 at 1.526% before dipping to 1.500%, up 4.4 basis points on the day.
(Reporting by Fergal Smith; Editing by Nick Zieminski and Peter Cooney)