Canadian dollar weakens as investors position ahead of Poloz speech

TORONTO (Reuters) - The Canadian dollar weakened on Monday against a broadly stronger U.S. dollar as investors positioned themselves ahead of a busy week that includes a speech by Bank of Canada Governor Stephen Poloz on Wednesday and a slew of speeches by U.S. Federal Reserve officials.

Bank of Canada Governor Stephen Poloz takes part in a news conference in Ottawa, Ontario, Canada, July 12, 2017. REUTERS/Chris Wattie

The retreat came even as prices of oil, a key Canadian export, rose to their highest for more than two years.

At 4:00 p.m. ET (2000 GMT), the Canadian dollar CAD=D4 was trading at C$1.2381 to the greenback, or 80.77 U.S. cents, down 0.3 percent.

“This week is jam-packed,” said Brad Schruder, director of director of corporate sales and structuring at BMO Capital Markets, pointing to events including a parade of Fed speakers, economic data and North American Free Trade talks. “A little bit of position squaring makes sense ahead of these risks.”

The currency traded in a range of C$1.2314 to C$1.2385.

It fell 1.2 percent against the U.S. dollar last week after a Bank of Canada policymaker said the currency’s strength would be a factor in future interest rate decisions.

All eyes are now on Poloz’s speech on Wednesday, with the market expecting him to keep the dollar in check without opening himself to charges from global peers that he is manipulating the currency.

Traders are looking at their positions and saying “it’s better to pare risk now than to try and do it in a potential storm mid-week,” Schruder said.

The Canadian dollar has climbed 9 percent this year.

In the United States, a debate within the Fed over the outlook for U.S. inflation burst into public view, with one central banker saying inflation weakness is fading and another suggesting he is nervous it won’t.

Officials from the United States, Mexico and Canada are in Ottawa for the third of seven planned rounds of talks, though no major development is expected this week. The U.S. delegation has yet to unveil its precise position on several points, prompting concerns the process to update the 1994 pact could drag on beyond the scheduled end-December finish.

Canadian government bond prices were higher across the yield curve, with the two-year CA2YT=RR up 2 Canadian cents to yield 1.595 percent and the 10-year CA10YT=RR up 17 Canadian cents to yield 2.092 percent.

The gap between Canada’s 10-year yield and its U.S. equivalent narrowed to a spread of -13.0 basis points.

Reporting by Fergal Smith and Solarina Ho; Editing by Bernadette Baum and James Dalgleish