Canadian dollar hits 2-1/2-month low on rising risk aversion

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar weakened for a fourth day against its U.S. counterpart on Thursday as the spread of the COVID-19 Delta variant slammed investor sentiment, offsetting higher oil prices.

The Canadian dollar was trading 0.4% lower at 1.2525 to the greenback, or 79.84 U.S. cents, adding to a string of declines since the start of the week. It touched its weakest intraday level since April 21 at 1.2590.

"The loonie's sell-off today largely relates to the deterioration in risk appetite," said Simon Harvey, senior FX market analyst for Monex Europe and Monex Canada.

"Market indicators across the board are pointing to concerns about growth prospects as the Delta variant continues to cause disruptions in large parts of the global economy."

Global stock markets fell, while safe havens, such as U.S. Treasuries, the Japanese yen and the Swiss franc rallied.

Canada is a major producer of commodities, including oil and copper, so the loonie tends to be sensitive to prospects for the global economy.

Copper prices fell but oil settled 1% higher at $72.94 a barrel after U.S. government data showed a much bigger drop than expected in crude and gasoline inventories.

The Canadian jobs report for June, which could offer clues on the Bank of Canada policy outlook, is due on Friday. Some analysts expect the BoC to cut bond purchases again at next week's interest rate announcement.

Canadian government bond yields were lower across a flatter curve, tracking the move in Treasuries. The 10-year touched its lowest level since Feb. 24 at 1.239% before recovering to 1.260%, down 3.6 basis points on the day.

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