C$ hits two-week low as potential travel ban extension weighs

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar weakened to a two-week low against its U.S. counterpart on Tuesday as the prospect of travel restrictions between Canada and the United States being extended threatened to heap additional pressure on Canada's economy.

Canada and the United States are set to extend a ban on non-essential travel that was imposed to fight the coronavirus outbreak, although a final decision has not been taken, two Ottawa sources familiar with the matter said on Monday.

That would be "a further drag" on the Canadian economy, said Scott Lampard, head of global markets at HSBC Bank Canada.

The ban does not stop the movement of goods but affects tourism and other services.

"I think there is just the prospect that the government is going to need to support the economy for longer," Lampard said.

Ottawa is rolling out more than C$212 billion in direct support measures for Canada's economy, while the Bank of Canada has slashed interest rates since March to a record low of 0.25%.

The central bank is expected to leave rates on hold at a policy announcement on Wednesday, with investors likely to focus on the bank's outlook for the economy and potential guidance on its bond-buying program.

The Canadian dollar <CAD=> was trading 0.1% lower at 1.3619 to the greenback, or 73.43 U.S. cents. The currency touched its weakest intraday level since June 30 at 1.3646.

The decline for the loonie came despite a higher price for oil, one of Canada's major exports. U.S. crude oil futures <CLc1> settled up 0.5% at $40.29 a barrel as OPEC and its allies cut production by more than agreed to in June, while Wall Street rose as investors looked beyond a recent surge in coronavirus cases.

Canadian government bond yields were mixed across a flatter curve, with the 30-year <CA10YT=RR> easing 1.4 basis points to 1.0470%.

(Reporting by Fergal Smith; Editing by Bernadette Baum and Peter Cooney)