Canadian dollar's advance stalls as oil prices decline

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 was little changed against its U.S. counterpart on Tuesday, pulling back from an earlier near seven-week high as oil prices fell and data showed climbing domestic coronavirus infections.

Canada’s chief public health officer warned that Canadians could face tighter health restrictions again as COVID-19 case numbers creep higher, particularly in the West. Canada’s seven-day rolling average of newly reported cases has ticked up again after falling to a low in early July.

The price of oil, one of Canada's major exports, fell as U.S. lawmakers prepared to wrangle over an economic stimulus package and investors worried about a rise in coronavirus cases worldwide. U.S. crude oil futures CLc1 settled 1.4% lower at $41.04 a barrel

The U.S. dollar index bounced off a two-year low, but looked primed for further weakness as the United States continued to see a rise in coronavirus cases, while the Federal Reserve is expected to maintain very loose monetary policies.

“Most of the gains over the last month for Canada has been due to U.S. dollar weakness,” said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets. “The U.S. struggles with COVID has helped us (the Canadian dollar) on a relative basis.”

The loonie CAD= was trading nearly unchanged at 1.3360 to the U.S. dollar, or 74.85 U.S. cents. The currency, which has benefited in recent weeks from signs of global economic recovery, touched its strongest intraday level since June 10 at 1.3331.

Canadian government bond yields were lower across much of a flatter curve along with lower Treasury yields. The 10-year CA10YT=RR was down 4.8 basis points at 0.475%.

Canada’s GDP report for May is due on Friday. It is expected to show some recovery in the economy after a sharp contraction in April.

Reporting by Fergal Smith; Editing by Andrea Ricci and Grant McCool