CANADA FX DEBT-Canadian dollar hits 3-week low as rate spreads widen

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Canadian dollar weakens 0.3% against the greenback

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Touches its weakest since Oct. 5 at 1.3754

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Price of U.S. oil settles more than 2% lower

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Canada-U.S. 2-year spread hits widest in six months

By Fergal Smith

TORONTO, Oct 24 (Reuters) – The Canadian dollar weakened to a near three-week low against its U.S. counterpart on Tuesday as interest rate spreads moved further in favor of the greenback after improved U.S. economic data and ahead of a Bank of Canada policy decision on Wednesday.

The loonie was trading 0.3% lower at 1.3730 to the greenback, or 72.83 U.S. cents, after touching its weakest intraday level since Oct. 5 at 1.3754.

“We are a little bit frozen going into the BoC meeting tomorrow. … But in general the trend has been a weaker CAD since July versus the U.S. dollar,” said Aaron Hurd, senior portfolio manager in the currency group at State Street Global Advisors.

“I think the U.S. will maintain that rate advantage at least for the next several quarters over Canada because the U.S. economy is not showing the slowing that we’ve seen in the Canadian economy.”

U.S. data showed business output ticked higher in October as manufacturing pulled out of a five-month contraction, boosting the U.S. dollar against a basket of major currencies.

Canada’s 2-year yield fell 2.3 basis points further below its U.S. equivalent to a gap of 36.8 basis points, its widest since April 28.

Canada’s economy could be particularly sensitive to higher interest rates after households borrowed heavily during the pandemic to participate in a red-hot housing market.

Canadian new home prices fell 0.2% in September from August and were down 1% on an annual basis, data from Statistics Canada showed.

Adding to headwinds for the loonie, the price of oil, one of Canada’s major exports, settled more than 2% lower at $83.74 a barrel after a flurry of slow economic data from the euro zone and Britain that weighed on the outlook for energy demand.

The Canadian 10-year yield was up 2.5 basis points at 4.038%. (Reporting by Fergal Smith; editing by Jonathan Oatis)