TORONTO: The Canadian dollar weakened to a more than two-month low against its US counterpart on Monday as oil prices fell and investors bet that the Bank of Canada will lag the Federal Reserve with interest rate hikes.

US crude prices were down 2.1 percent at $66.47 a barrel as Saudi Arabia and Russia said they may increase supplies while US production gains show no sign of slowing.

The decline has left oil, one of Canada's major exports, nearly 9 percent below last week's nearly 3-1/2-year high at $72.83.

A slowdown in the Canadian real estate market and potential widening of the gap between US and Canadian interest rates are adding to pressure on the loonie, said Michael White, portfolio manager at Picton Mahoney Asset Management.

"We have positioning in place that argues for a lower Canadian dollar from here," White said.

The Bank of Canada will announce an interest rate decision on Wednesday. It will probably hold interest rates steady as indebted consumers and uncertain trade policy necessitate caution, a Reuters poll predicted.

The central bank's benchmark policy rate sits at 1.25 percent, while the Fed's is in a target range of 1.50 percent to 1.75 percent. Money markets expect the Fed to hike next month.

Canada's Foreign Affairs Minister Chrystia Freeland will visit Washington this week in another bid to help unblock talks on the North American Free Trade Agreement, a spokesman said.

Canada sends about 75 percent of its exports to the United States so its economy could be hurt if NAFTA collapses.

At 3:41 p.m. EDT (1941 GMT), the Canadian dollar was trading 0.1 percent lower at C$1.2996 to the greenback, or 76.95 US cents. The currency touched its weakest since March 21 at C$1.3022.

Activity was lighter than usual in the foreign exchange market due to holidays in Britain and the United States.

Investors may also weigh this week prospects for the Trans Mountain oil pipeline as a hard deadline set by Kinder Morgan Canada Ltd for scrapping the pipeline's expansion looms.

The US dollar gained against a basket of major currencies after Italy's president set the country on a path to fresh elections, pressuring the euro.

Canadian government bond prices were higher across a flatter yield curve in sympathy with German Bunds. The 10-year rose 45 Canadian cents to yield 2.296 percent.

The 10-year yield touched its lowest intraday since April 19 at 2.292 percent.