Canadian dollar hits 2-week low as Wall Street retreats

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar weakened to a near two-week low against its U.S. counterpart on Wednesday as oil prices fell and an uncertain outlook for U.S. interest rates weighed on investor sentiment.

The loonie was trading 0.3% lower at 1.3695 per U.S. dollar, or 73.02 U.S. cents, after touching its weakest level since May 9 at 1.3698.

"I would say nothing is really working in Canada's favor today," said Marc Chandler, chief market strategist at Bannockburn Global Forex LLC. "You've got a stronger U.S. dollar, higher U.S. interest rates, weaker stocks, weaker oil."

U.S. bond yields rose and the greenback notched gains against a basket of major currencies as Federal Reserve officials acknowledged disappointment over recent inflation readings in the minutes from the central bank's latest policy meeting.

Wall Street's major indexes fell and the price of oil, one of Canada's major exports, headed lower for a third straight day. U.S. crude oil futures settled 1.4% lower at $77.57 a barrel.

The loonie could soften further if investors dial back expectations for Fed rate cuts, Chandler said, adding "I think the market is still pricing in too strong of a chance of two cuts this year from the Fed."

The move lower for the loonie comes after data on Tuesday showed Canada's annual rate of inflation falling to a three-year low of 2.7%, raising bets that the Bank of Canada would begin cutting interest rates at its next policy decision on June 5.

Canadian government bond yields moved higher across a more deeply inverted curve. The 2-year rose 4.6 basis points to 4.216%, while the 10-year was up 1.7 basis points at 3.601%.

(Reporting by Fergal Smith; editing by Diane Craft)