TORONTO: The Canadian dollar weakened against the greenback on Monday as the deal reached over the weekend to curb Iran's nuclear program drove oil prices lower, weighing on the commodity-linked currency.
The Canadian dollar touched a more than four-month low in the overnight session, extending last week's weakness after a tame inflation report and comments from the head of the Bank of Canada underscored market expectations that interest rates will be kept low for some time.
Iran and six world powers struck a deal on Sunday under which Tehran is to limit its nuclear energy program in exchange for initial relief from international trade and financial sanctions.
The deal sent oil prices lower, though US crude futures pared declines to settle down 75 cents at $94.09 a barrel. Canada is a major oil exporter, making its currency sensitive to fluctuations in oil prices.
"The Iran deal and the subsequent impact on oil prices does attract attention to the fact that oil and commodities generally have been softer for the last two or three months as it is," said Greg Moore, FX strategist at TD Securities in Toronto.
In recent months, investors have had their attention on central bank policy on both sides of the border, but the impact of weaker commodities could garner more focus for now, said Moore.
The Canadian dollar ended the North American session at C$1.0548 versus the US dollar, or 94.80 US cents, weaker than Friday's close of C$1.0524, or 95.02 US cents. The loonie hit a low of C$1.0584 over night, its lowest since early July.
With the Canadian dollar pushing toward those July levels, the move may be based more on momentum than fundamentals, said Gareth Sylvester, director at Klarity FX in San Francisco.
"Regardless of fundamental influences, (traders) simply want to see if they can drive price action up to match those highs once again," said Sylvester.
If the loonie is able to close above C$1.0608, the next technical target will be C$1.0850, he said.
The domestic economic calendar is light this week and trading could be quieter heading into the US Thanksgiving holiday on Thursday.
Focus will be on Friday's Canadian gross domestic product report, with growth in the third quarter forecast to pick up to a 2.5 percent annualized rate.
Canadian bond prices were mixed across the maturity curve, with the two-year bond off half a Canadian cent to yield 1.108 percent, while the benchmark 10-year bond was up 15 Canadian cents to yield 2.558 percent.
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