Canadian dollar lags G10 peers as oil tumbles

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar weakened against its U.S. counterpart and most other G10 currencies on Tuesday as the price of oil tumbled and investors grew risk averse ahead of interest rate decisions by the Federal Reserve and European Central Bank this week.

The loonie was trading 0.6% lower at 1.3625 to the greenback, or 73.39 U.S. cents, after moving in a range of 1.3529 to 1.3637.

Among G10 currencies, only the Norwegian crown posted a bigger decline. Canada and Norway are both major exporters of oil.

"It's definitely risk aversion across asset classes," said Eric Theoret, global macro strategist at Manulife Investment Management. "The fundamental piece that is compounding the weakness and putting the CAD at the bottom of the performance table is a pretty dramatic decline in crude prices."

Oil fell more than 5% and Wall Street stocks lost ground as investors worried about a possible U.S. debt default and expected further tightening from the Fed and the ECB.

The Fed rate decision is due on Wednesday, while the ECB will make its decision on Thursday.

The Bank of Canada left its benchmark rate on hold for a second straight meeting at 4.50% last month but has warned that it could tighten further if needed to return inflation to its 2% target.

BoC Governor Tiff Macklem is set to speak on Thursday about the challenges and risks in getting inflation back on target.

Canadian government bond yields were lower across the curve, tracking moves in U.S. Treasuries. The 10-year eased 13.9 basis points to 2.838% but was holding within its range in recent weeks.

(Reporting by Fergal Smith, editing by Deepa Babington)