Loonie weakens as global growth fears grip investors

TORONTO (Reuters) - The Canadian dollar edged lower against its U.S. counterpart on Tuesday as investors worried that trade talks this week between the United States and China would do little to help the global growth outlook.

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

U.S. stocks fell as hopes of progress in high-level trade talks were dashed by a report Washington was moving ahead with efforts to limit capital flows to China and the inclusion of some top Chinese startups to a blacklist.

“The loonie is facing two battles, that’s not just the domestic economy and sustaining the growth, but it’s also the oil markets and how they’re reacting to these growth fears in global markets,” said Simon Harvey, FX market analyst at Monex Europe and Monex Canada.

The price of oil, one of Canada’s major exports, slid on dampened hopes for a U.S.-China trade deal, although unrest in Iraq and Ecuador lent some support to crude prices. U.S. crude oil futures settled 0.2% lower at $56.23 a barrel.

At 2:57 p.m. (1857 GMT), the Canadian dollar CAD=D4 was trading 0.1% lower at 1.3319 to the greenback, or 75.08 U.S. cents. The currency, which touched a one-month low last Thursday at 1.3348, traded in a range of 1.3289 to 1.3336.

The loonie lost ground even as data from Canada’s national housing agency showed that housing starts fell less than expected in September, declining 2.5% from the previous month to 221,202 units.

Separate data, from Statistics Canada, showed that the value of Canadian building permits rose by 6.1% in August from July.

“Canada’s housing sector is back on the front foot with resales picking up as the year progresses and homebuilding activity clearly displaying some momentum,” Josh Nye, a senior economist at Royal Bank of Canada, said in a note.

Canada’s employment report for September, due on Friday, can help guide expectations for the Bank of Canada policy outlook.

Canadian government bond prices were higher across the yield curve in sympathy with U.S. Treasuries. The two-year CA2YT=RR rose 2 Canadian cents to yield 1.449% and the 10-year CA10YT=RR was up 20 Canadian cents to yield 1.278%.

Reporting by Fergal Smith; Editing by Mark Heinrich and Peter Cooney