Canadian dollar falls by most in 4 months as investors eye peak growth

·2 min read
FILE PHOTO: FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar fell to a two-month low against its broadly stronger U.S. counterpart on Tuesday, as oil prices tumbled and investors weighed signs that the pace of global economic recovery is peaking.

Canada is a major exporter of commodities, including oil, so the loonie has benefited this year from the global economy's rebound from the coronavirus crisis.

"There is a school of thought that you sell the recovery trade when the pace of growth peaks," said Adam Button, chief currency analyst at ForexLive. "The pace of growth from Q3 onwards will decelerate."

A gauge of activity on the U.S. services sector showed moderate growth in June, down from the record pace in May, while oil pulled back from a multi-year high as OPEC+ producers clashed over plans to increase supply.

U.S. crude futures settled down 2.4% at $73.37 a barrel, while the Canadian dollar was trading 0.9% lower at 1.2456 to the greenback, or 80.28 U.S. cents, its biggest decline since Feb. 26. It touched its weakest level since April 23 at 1.2494.

Among G10 currencies, only the Norwegian crown fell more. Norway is also a major oil producer.

The U.S. dollar rallied against a basket of major currencies ahead of Wednesday's release of the minutes from the Federal Reserve's June meeting. The meeting resulted in a surprise shift to more hawkish guidance from the central bank.

The Canadian jobs report for June is due on Friday which could offer clues on the Bank of Canada policy outlook. Some analysts expect the BoC to cut bond purchases again at next week's interest rate announcement.

Canadian bond yields fell across a flatter curve, tracking the move in U.S. Treasuries. The 10-year touched its lowest since Feb. 24 at 1.307% before recovering slightly to 1.328%, down 7.3 basis points on the day.

(Reporting by Fergal Smith in Toronto; Editing by Alison Williams and Matthew Lewis)

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