Canadian dollar down in volatile trade as oil, election weigh

TORONTO (Reuters) - The Canadian dollar slipped against its U.S. counterpart on Friday, after hitting an eight-month low in volatile trade as investors worried about next week’s U.S. election, lower oil prices and potential interest rate divergence.

A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015. REUTERS/Mark Blinch

Strong U.S. hiring in October could effectively seal the case for a December interest rate increase from the Federal Reserve, while Canada’s reliance on new part-time positions for job growth suggests the Bank of Canada will remain cautious.

The loonie, as Canada’s currency is colloquially known, hit its weakest level since March at C$1.3466, or 74.26 U.S. cents, before recovering somewhat to settle at C$1.3403, or 74.61 U.S. cents. It closed on Thursday at C$1.3383, or 74.72 U.S. cents.

“It’s a very volatile, jittery market, and the big elephant is going to be the election next Tuesday,” said Hosen Marjaee, a senior managing director for Canadian fixed income at Manulife Asset Management.

The battle between Democrat Hillary Clinton and Republican Donald Trump has tightened significantly in the past week, as several swing states that were leaning toward Clinton are now considered toss-ups.

“From a Canadian dollar perspective, the fear is that if Trump gets in, he may, as he has promised or talked about, renege on some of the trade agreements which have been helpful to us,” Marjaee said.

Marjaee said concern a proposed deal to limit oil production may unravel also weighed on the currency of Canada, a major oil producer.

Oil futures fell this week by the most since January as signs of tensions resurfaced between Saudi Arabia and Iran that could scupper the key supply cut pact.

Canada posted a record trade deficit of C$4.1 billion in September, but the figure was boosted by the one-off import of machinery for an oil project.

“The lackluster trend in exports suggest that we are still going to need a cheap Canadian dollar for a long time plus a cheaper-still Canadian dollar going forward,” said Nick Exarhos, economist at CIBC Capital Markets.

Speculators raised bearish bets on the Canadian dollar to the most since March, Commodity Futures Trading Commission data showed. Net short Canadian dollar positions rose to 15,960 contracts in the week ended Nov 1 from 13,324 in the prior week.

Canadian government bond prices were higher across the yield curve, with the two-year CA2YT=RR price up 5 Canadian cents to yield 0.523 percent and the benchmark 10-year CA10YT=RR rising 35 Canadian cents to yield 1.116 percent.

Additional reporting by Fergal Smith; Editing by Jonathan Oatis