By Fergal Smith
TORONTO (Reuters) - The Canadian dollar weakened to its lowest level in nearly two years against its U.S. counterpart on Thursday as oil prices tumbled and the prospect of aggressive tightening by the Federal Reserve weighed on investor sentiment.
The Canadian dollar was trading 0.5% lower at 1.3230 to the greenback, or 75.59 U.S. cents, after touching its weakest intraday level since November 2020 at 1.3240.
"The Canadian dollar is trading defensively in an environment of broad-based risk aversion," said Eric Theoret, global macro strategist at Manulife Investment Management. "Fundamentals are also deteriorating, as we note renewed weakness in oil prices."
Wall Street's main indexes fell as a slew of economic data pointed to resilience in the U.S. economy which could keep the Federal Reserve on track for aggressive interest rate hikes.
Oil, one of Canada's major exports, was pressured by expectations of weaker demand. U.S. crude oil futures settled 3.8% lower at $85.10 a barrel.
Meanwhile, Canada's average resale home price fell 3.9% from a year ago in August but was up 1.2% on the month as the market appeared to stabilize in the Greater Toronto Area.
A series of rapid interest rate hikes by the Bank of Canada has pressured Canada's previously red-hot housing market in recent months.
As investors weigh how much further the BoC will tighten, the level of underlying inflation is likely to be a better signpost than the central bank's much scrutinized estimate of the neutral interest rate, economists say.
Canadian government bond yields climbed across a more deeply inverted curve, tracking the move in U.S. Treasuries.
The 2-year touched its highest since December 2007 at 3.857% before dipping to 3.815%, up 5.5 basis points on the day. It was trading 6.8 basis points further above the 10-year at a gap of 66.9 basis points.
(Reporting by Fergal Smith; Editing by Andrea Ricci and Marguerita Choy)