TORONTO: The Canadian dollar fell to its lowest level in nearly three weeks against its broadly stronger US counterpart on Monday as oil prices fell and investors weighed the prospect of aggressive interest rate hikes by global central banks to tackle inflation.

Government bonds extended a bruising selloff, equity markets tumbled and the safe-haven US dollar resumed its march towards two-decade highs ahead of a big week for central banks, including a Federal Reserve policy decision on Wednesday.

Investors worry that aggressive monetary tightening by the Fed could tip the US economy into recession.

The price of oil, one of Canada’s major exports, dropped as a flare-up in COVID-19 cases in Beijing dented hopes of a Chinese demand rebound.

US crude prices fell 1% to $119.42 a barrel, while the Canadian dollar was trading 0.6% lower at 1.2863 to the greenback, or 77.74 US cents, its fourth consecutive day of losses.

The currency touched its weakest since May 25 at 1.2876.

Still, speculators have cut their bearish bets on the Canadian dollar, data from the US Commodity Futures Trading Commission showed on Friday. As of June 7, net short positions had fallen to 1,062 contracts from 7,007 in the prior week.

Money markets see about a 75% chance that the Bank of Canada would hike interest rates by three-quarters of a percentage point next month after data on Friday showed the Canadian economy adding more jobs in May than expected.

Canadian government bond yields were higher across a flatter curve, tracking the move in US Treasuries. The 10-year touched its highest since April 2011 at 3.453% before dipping to 3.419%, up 6.6 basis points on the day.

The gap between the 2- and 10-year yields narrowed by 1.3 basis points to 10.3 basis points, trading at nearly its narrowest since March 2020.