Canadian dollar hits near four-week low as investors weigh North Korea tensions

TORONTO (Reuters) - The Canadian dollar hit a nearly four-week low against its U.S. counterpart on Wednesday as worries about increased U.S.-North Korea tension weighed, offsetting higher oil prices and stronger-than-expected domestic housing data.

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/File Photo

President Donald Trump’s warning that North Korea faced “fire and fury,” and Pyongyang’s threat of possible retaliation, drove investors out of stocks and into the yen, Swiss franc, gold and government debt.

Commodity-linked currencies, such as the Canadian dollar, which are sensitive to global trade, also lost ground.

The loss of risk appetite has spurred some “squaring up” of investors’ positions after a recent big move in the loonie, said Scott Lampard, head of global markets at HSBC Bank Canada.

Speculators have increased bullish bets on the loonie to the highest level since January 2013, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed on Friday.

At 4 p.m. EDT (2000 GMT), the Canadian dollar CAD=D4 was trading at C$1.2705 to the greenback, or 78.71 U.S. cents, down 0.3 percent.

The currency’s strongest level of the session was C$1.2666, while it touched its weakest since July 14 at C$1.2721.

Still, the loonie has rallied 6 percent since the Bank of Canada turned hawkish in June. The central bank raised interest rates last month for the first time in nearly seven years.

“The big picture question continues to be what is the Bank of Canada going to do in the fall,” Lampard said.

Economists expect the central bank to hike again as soon as October. But recent widening in the trade deficit and a slowdown in the housing market could temper the pace of rate hikes.

Canadian housing starts rose in July on growth in western British Columbia, even as groundbreaking on single-detached homes fell in Toronto where activity has cooled after the province introduced measures to rein in a frothy market.

U.S. crude CLc1 prices settled 39 cents higher at $49.56 a barrel after data pointed to declining U.S. inventories.

Canadian government bond prices were higher across a flatter yield curve in sympathy with U.S. Treasuries as investors bought safe-haven assets.

The 10-year CA10YT=RR rose 24 Canadian cents to yield 1.907 percent, while the gap between the 2-year yield and the 10-year yield narrowed by 1 basis point to 66.8 basis points, as longer-dated bonds outperformed.

Reporting by Fergal Smith; Editing by Nick Zieminski and Lisa Shumaker