Canadian dollar hits two-and-a-half-month low ahead of BoC rate decision this week

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

TORONTO (Reuters) - The Canadian dollar weakened to a two-and-a-half-month low against its U.S. counterpart on Tuesday as trade tensions weighed on global equity markets and investors awaited a Bank of Canada interest rate decision on Wednesday.

U.S. stocks fell as Washington’s new round of tariffs on some Chinese goods kicked in and after a report that officials from both sides were struggling to decide on the schedule for a meeting this month.

Canada exports many commodities, including oil, so its economy could be hurt by a slowdown in global trade.

Data on Tuesday showed that Canadian manufacturing activity slowed in August as new work received by firms slumped to the lowest level in nearly four years.

Meanwhile, the price of oil was pressured by rising OPEC and Russian oil output as well as the protracted U.S.-China trade dispute that has dragged on the global economy. U.S. crude oil futures CLc1 were down 3.4% at $53.21 a barrel.

At 9:53 a.m. (1353 GMT), the Canadian dollar CAD=D4 was trading 0.3% lower at 1.3355 to the greenback, or 74.88 U.S. cents. The currency, which fell last week for the seventh straight week, touched its weakest intraday level since June 19 at 1.3382.

Data on Friday showing that Canada’s economy grew much more than expected in the second quarter has supported expectations that the Bank of Canada will leave its benchmark interest rate unchanged at 1.75% at Wednesday’s announcement. Still, economists in a Reuters poll see increased likelihood of a rate cut by year-end.

Canadian government bond prices were higher across the yield curve, with the two-year CA2YT=RR up 4 Canadian cents to yield 1.332% and the 10-year CA10YT=RR rising 17 Canadian cents to yield 1.146%.

Last month, the 10-year yield hit its lowest intraday level since October 2016 at 1.083%.

Reporting by Fergal Smith; Editing by Nick Zieminski