Loonie slides to 2-month low as China virus hits oil demand

TORONTO (Reuters) - The Canadian dollar fell to a two-month low against its broadly stronger U.S. counterpart on Monday as evidence emerged that China’s coronavirus outbreak is slashing demand for oil, one of Canada’s major exports.

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

At 2:54 p.m. (1954 GMT), the Canadian dollar CAD=D4 was trading 0.4% lower at 1.3292 to the greenback, or 75.23 U.S. cents. The currency, which fell 1.9% in January, touched its weakest intraday level since Dec. 3 at 1.3302.

“The loonie continues to slide along with crude oil prices due to reports of substantial demand shocks coming from China,” said Simon Harvey, FX market analyst for Monex Europe and Monex Canada.

As the virus outbreak hits fuel demand in China, the world's biggest crude oil importer, refiner Sinopec Corp 0386.HK told its facilities to cut throughput this month by about 600,000 barrels per day, or 12%, the steepest cut in more than a decade. U.S. crude oil futures CLc1 were down 2.9% at $50.06 a barrel. [nL4N2A30G4]

The current price of oil is about $10 lower than the Bank of Canada assumed in its economic forecasts last month, when it opened the door to an interest rate cut. Money markets see about a 60% chance that the central bank would ease by April. BOCWATCH

“The external risks facing the Bank of Canada have reared their heads in the repackaged form of a slowing Chinese economy,” Harvey said.

Canadian manufacturing activity expanded in January for the fifth straight month but the pace of growth remained sluggish. The IHS Markit Canada Manufacturing Purchasing Managers’ index rose to a seasonally adjusted 50.6 in January from 50.4 in December.[nL1N29Z0GD]

Canadian trade data for December is due on Wednesday, while the January jobs report is awaited on Friday.

The U.S. dollar .DXY climbed against a basket of major currencies, helped by data showing that U.S. manufacturing activity rebounded in January. [nN9N27Z02Q]

Canadian government bond yields fell across a flatter yield curve, with the 10-year yield down 1.2 basis points at 1.261%. On Friday, it touched its lowest intraday level since Oct. 8 at 1.257%.

Reporting by Fergal Smith; Editing by Paul Simao and Nick Zieminski