TORONTO: The Canadian dollar lost ground against its US counterpart on Tuesday as oil prices fell and risk appetite faded, while losses were more pronounced against the safe-haven Japanese yen.
Oil prices lost 4 percent after Saudi and Iranian oil ministers poured cold water on hopes for a coordinated move to limit production amid a global supply glut.
"We've seen hope fade in the energy market that there would be any near-term supply cuts to shore up the price," said
Scott Smith, senior market analyst at Cambridge Global Payments in Toronto. "That's really been driving the bus for the Canadian dollar today."
Weaker stock markets here and overseas were an additional headwind for the risk-sensitive commodity currency.
The Canadian dollar ended the session trading at C$1.3768 to the greenback, or 72.63 US cents, weaker than the Bank of Canada's official close of C$1.3712, or 72.93 US cents.
The currency's strongest level of the session was C$1.3696, while its weakest level was C$1.3821.
US crude prices settled down 4.6 percent at $31.87 a barrel, while Brent lost 3.8 percent to $33.38.
Cambridge's Smith said the currency would likely fluctuate with oil in the short-term and could see further weakness in the next three to six months.
It weakened to 81.50 yen as the Japanese currency outperformed.
Canada's Liberal government said on Monday it will stick to plans to invest in infrastructure projects even as it warned it would run much bigger budget deficits than previously anticipated.
Adding private sector investment to government infrastructure projects could spur even greater spending, reducing the odds of another Bank of Canada rate cut.
Canadian government bond prices were lower across the maturity curve. The two-year price fell 4.5 Canadian cents to yield 0.475 percent and the benchmark 10-year was down 13 Canadian cents to yield 1.138 percent.
Bank of Canada Deputy Governor Lawrence Schembri will deliver a speech on Wednesday, addressing the topic of elevated household debt and the risk to financial stability.
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