Canadian dollar dips as risk appetite turns more cautious

TORONTO (Reuters) - The Canadian dollar edged lower against its U.S. counterpart on Tuesday, as a sell-off in China's stock market weighed on sentiment and a record low for U.S. bond yields after adjusting for inflation signaled worries about the economic outlook.

World stocks fell after investors sold Chinese internet giants for a third straight day, while real U.S. bond yields declined ahead of a Federal Reserve interest rate decision on Wednesday, with some investors betting that the pace of global economic recovery has peaked.

Canada is a major producer of commodities, including oil, so its economy tends to be sensitive to the outlook for global growth.

U.S. crude prices were little changed at $71.88 a barrel, while the Canadian dollar was trading 0.1% lower at 1.2557 to the greenback, or 79.64 U.S. cents.

Still, the currency has recovered from a five-month low last week at 1.2807 when investors were rattled by the spread of the Delta variant of the coronavirus.

The Canadian Consumer Price Index report for June is set for release on Wednesday, which will include updated weights for the basket of goods and services used in the index. Shifts include a higher weighting for the shelter component as housing prices soar.

Canadian government bond yields were lower across a flatter curve, tracking the move in U.S. Treasuries. The 10-year fell five basis points to 1.173% but held above the five-month low hit last Tuesday at 1.104%.

(Reporting by Fergal Smith; Editing by Steve Orlofsky)