Canadian dollar hits near four-week low as oil falls, greenback rallies

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar weakened to a nearly four-week low against its U.S. counterpart on Wednesday as oil prices fell and the greenback broadly climbed, while a pipeline feud between two provinces threatened to undermine investor confidence.

At 4 p.m. EST (2100 GMT), the Canadian dollar was trading 0.6 percent lower at C$1.2566 to the greenback, or 79.58 U.S. cents.

The currency's strongest level of the session was C$1.2491, while it touched its weakest since Jan. 11 at C$1.2577.

The price of oil, one of Canada's major exports, fell to a one-month low after U.S. data showed a build-up in inventories and record high crude production.

U.S. crude oil futures settled 2.5 percent lower at $61.79 a barrel.

The U.S. dollar rose against most major currencies as a choppy session on Wall Street supported the greenback's safe-haven allure.

The loonie has retreated 2.4 percent since stocks began to head sharply lower on Friday. One week ago, the currency touched its strongest in more than four months at C$1.2250.

"When we were trading around C$1.22, C$1.23, it was a little bit too strong," said Hosen Marjaee, senior managing director, Canadian Fixed Income at Manulife Asset Management. "People were not paying attention to the NAFTA (North American Free Trade Agreement) risk and potential risk in the housing market, even the issues with respect to pipelines."

Canada's oil-rich province of Alberta struck back at neighboring British Columbia on Tuesday, halting purchases of that province's wines in retaliation for its potentially holding up expansion of a crude pipeline.

The dispute between two major provinces could indicate to foreign investors that "Canada is very environmentally friendly but not necessarily very business friendly," Marjaee said.

In domestic data, the value of building permits jumped by 4.8 percent in December from November, Statistics Canada said. Analysts had expected an increase of 2.0 percent.

Canadian government bond prices were lower across the yield curve in sympathy with U.S. Treasuries after the U.S. Treasury Department sold new 10-year notes to soft demand and the U.S. Senate reached a budget deal, boosting expectations of stronger economic growth.

The two-year fell 2 Canadian cents to yield 1.85 percent and the 10-year declined 10 Canadian cents to yield 2.377 percent.

Bank of Canada Senior Deputy Governor Carolyn Wilkins on Thursday will give a speech, which could offer clues on the outlook for interest rates. Canada's employment report for January is due on Friday.

(Reporting by Fergal Smith; Editing by Sandra Maler)