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Canadian dollar hits 7-week low, pressured by Fed uncertainty

·2 min read
FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Tuesday as investors weighed prospects of the Federal Reserve turning less dovish, with the commodity-linked currency extending its pullback from a recent six-year high.

The loonie was trading 0.4% lower at 1.2192 to the greenback, or 82.02 U.S. cents, after earlier touching its weakest level since May 6 at 1.2204. Earlier this month, it touched its strongest in six years at 1.2007.

"We've had such a strong move with commodity currencies and that trade has been slowly getting unwound," said Edward Moya, a senior market analyst at OANDA in New York.

"We are starting to see a little bit more of an expectation that you are going to have a slightly less dovish Fed tomorrow and the commodity trade could continue to get undone a little bit," Moya added.

In a new policy statement and economic projections due on Wednesday, the Fed is expected to acknowledge the first conversations among its policymakers about when and how fast to pare back the massive bond-buying program launched last year.

The program has supported global economic recovery, boosting commodity prices. Canada is a major producer of commodities, including copper and oil.

Copper fell 4%, extending its pullback from a record high in May. Oil settled 1.8% higher at $72.12 a barrel.

Canadian housing data for May was mixed. Housing starts climbed 3.2% compared with the previous month, while home sales were down for a second month after a blazing start to the year.

Canadian consumer price data is due on Wednesday, which could offer clues on the Bank of Canada policy outlook.

The Canadian 10-year yield was little changed at 1.389%. On Monday, it touched its lowest intraday level in more than three months at 1.365%.

(Reporting by Fergal Smith; Editing by Jonathan Oatis and Peter Cooney)

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