C$ hits 1-week low on trade worries, before rate decision

TORONTO: The Canadian dollar weakened to a one-week low against the greenback on Wednesday ahead of an expected interest rate hike by the Bank of Canada, and as trade tensions between the United States and China pressured stocks and commodity prices.

US stock index futures slumped after the United States threatened tariffs on an additional $200 billion worth of Chinese goods, damping hopes of a compromise on trade.

Canada, which has its own trade dispute with the United States, exports many commodities and runs a current account deficit so its economy could also be hurt if the flow of trade or capital slows.

The price of oil, one of Canada's major exports, was pressured by the threat of tariffs and after Libya announced the reopening of key oil export terminals. US crude prices were down 1.1 percent at $73.32 a barrel.

At 8:52 a.m. EDT (1252 GMT), the Canadian dollar was trading 0.1 percent lower at C$1.3129 to the greenback, or 76.17 US cents. The currency touched its weakest since July 3 at C$1.3173.

The trade row between Canada and the United States will not be enough to stop the Bank of Canada from raising rates on Wednesday, but bigger storm clouds over trade could mean it is the last hike for a while, analysts say.

The central bank has raised its policy rate three times since last summer to a level of 1.25 percent.

Canadian government bond prices were lower across the yield curve, with the two-year down 2 Canadian cents to yield 1.948 percent and the 10-year falling 11 Canadian cents to yield 2.162 percent.

The gap between the 2-year yield and its US equivalent narrowed by 2.8 basis points to a spread of -63.0 basis points.