TORONTO/OTTAWA: The Canadian dollar weakened against the greenback on Tuesday, hitting a nearly one-week low as crude oil prices fell and investors braced for a policy decision from the US Federal Reserve on Wednesday.
Oil prices slid for a second day.
US crude prices settled down 84 cents at $36.34 a barrel. Global risk aversion added to the headwinds for the commodity-related currency after the Bank of Japan painted a bleaker picture of the Japanese economy.
"We're really continuing to see a tight correlation between the Canadian dollar and oil," said Scott Smith, senior market analyst at Cambridge Global Payments in Toronto.
The Canadian dollar ended the North American trading session at C$1.3362 to the greenback, or 74.84 US cents, weaker than Monday's close of C$1.3267, or 75.37 US cents.
The decline brought the loonie further away from the four-month high it hit at the end of last week.
Focus was also turning to the two-day Fed policy meeting that began on Tuesday. Investors were preparing for a hawkish tone from the statement on Wednesday, which could boost the US dollar to the detriment of the loonie.
"(Stronger) inflation expectations, better-than-expected economic data and a calming of the international marketplace really alleviate some of the concerns the Fed had about the previous tightening in December," said Smith.
"While I don't think they will raise rates tomorrow, I think what we're going to be able to see is a more hawkish Fed."
Domestic data was mixed. Sales of existing homes rose 0.8 percent in February from the prior month, a report from the Canadian Real Estate Association showed. Data from PayNet showed that commercial borrowing by small businesses dipped at the start of 2016 as the economy continued to feel the pain from the downturn in energy prices.
Canadian government bond prices rose across the maturity curve, with the two-year price up 1 Canadian cent to yield 0.574 percent and the benchmark 10-year rising 16 Canadian cents to yield 1.328 percent.
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