Loonie hits two-week low as coronavirus hits commodity producers' outlook

TORONTO (Reuters) - The Canadian dollar weakened to a two-week low against its broadly stronger U.S. counterpart on Wednesday as investors bet that the spreading coronavirus outbreak would hurt the economies of commodity producing countries.

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

At 12:36 p.m. (1736 GMT), the Canadian dollar CAD=D4 was trading 0.2% lower at 1.3313 to the greenback, or 75.11 U.S. cents. The currency touched its weakest intraday level since Feb. 10 at 1.3322.

“I think geographically it (Canada) is maybe a little bit better placed than some other countries like Australia and New Zealand in the midst of this outbreak,” said Erik Nelson, associate, currency strategist, at Wells Fargo. “But it is still a risk-off currency so it’s taking a hit and of course oil is down so that’s not helping either.”

Australia and New Zealand, like Canada, are major producers of commodities. The currencies of all three countries tend to be sensitive to the outlook for the global economy.

The Australian dollar AUD= was down 0.7%, while the price of oil, one of Canada's major exports, fell to its lowest level since January 2019 as Asia, Europe and oil-producing countries in the Middle East reported hundreds of new coronavirus cases. U.S. crude oil prices CLc1 were down 1.1% at $49.36 a barrel.

The U.S. dollar .DXY rebounded from a two-week low hit in the previous session in step with U.S. equity markets.

On Tuesday, protesters in Canada blocked train lines, Vancouver’s port entrance and at least one highway in response to the arrest of 10 indigenous activists when police dismantled a rail barricade in southern Ontario a day earlier.

Disruptions to rail could add to headwinds for Canada’s economy. Last month, the Bank of Canada opened the door to an interest rate cut should a recent slowdown in domestic growth persist.

Canadian government bond yields edged lower across a steeper yield curve on Wednesday. The 10-year CA10YT=RR was down 1 basis point at 1.204%. On Monday, the 10-year yield hit a near six-month low at 1.170%.

Toronto’s stock market is set to recoup recent losses and continue climbing but the coronavirus outbreak and its impact on global growth could hold back prospects for a steeper uplift in valuations, a Reuters poll found.

Reporting by Fergal Smith; Editing by Steve Orlofsky and Tom Brown