Canadian dollar posts biggest decline in 2 months as oil falls

By Fergal Smith

TORONTO (Reuters) -The Canadian dollar weakened against its U.S. counterpart on Thursday, posting its biggest decline since early March, as oil prices fell and U.S. data added to evidence that the economy is slowing down.

The loonie was trading 0.8% lower at C$1.3490 to the greenback, or 74.13 U.S. cents, its biggest decline since March 7. It traded in a range of 1.3364 to 1.3495.

"Looks like a mix of lower oil prices and a reaction to the US PPI and initial claims reading," said Amo Sahota, director at Klarity FX in San Francisco.

The number of Americans filing new claims for unemployment benefits jumped to a 1-1/2-year high last week, and producer prices rebounded modestly in April.

The data was seen as consistent with most economists' expectations of a recession by the end of the year. Canada sends about 75% of its exports to the United States, including oil.

The price of oil fell 2.3% as a political standoff over the U.S. debt ceiling added to recession jitters, while Wall Street was pressured by another rout in the regional banking sector.

Meanwhile, the U.S. dollar gained ground against a basket of major currencies, helped by losses for sterling despite another interest rate hike from the Bank of England.

The selloff in sterling "triggered demand for USD that carried across the majors," Sahota said.

Canadian government bond yields eased across a flatter curve, tracking moves in U.S. Treasuries. The 10-year bond yields was down 7.8 basis points to 2.828%.

(Reporting by Fergal Smith; Editing by Leslie Adler)