Canadian dollar slips as virus curbs weigh on global markets

TORONTO (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Thursday as investors assessed increased restrictions in parts of the world to contain the spread of the new Omicron variant and ahead of a speech by a senior Bank of Canada official.

World stock markets stalled at two-week highs and the price of oil, one of Canada's major exports, fell 1.3% to $71.40 a barrel as British Prime Minister Boris Johnson imposed tougher COVID-19 restrictions in England.

A ratings downgrade for two Chinese property developers also weighed on oil, stoking fears over the economic health of the world's biggest importer of the product.

The loonie was trading 0.3% lower at 1.2686 to the greenback, or 78.83 U.S. cents, after trading in a range of 1.2650 to 1.2698.

On Wednesday, the currency touched its strongest level in nearly three weeks at 1.2604 but then lost some ground after the Bank of Canada said that the Omicron variant has created "renewed uncertainty" and maintained its guidance on the start of interest rate hikes, disappointing some investors that had expected a shift to a more hawkish stance.

Bank of Canada Deputy Governor Toni Gravelle is due to speak on the economy's progress at 2 p.m. ET (1900 GMT).

Canadian government bond yields were lower across a flatter curve, with the 10-year down 7.9 basis points at 1.510%.

The gap between the 10-year rate and the U.S. equivalent was down 5.3 basis points at 2.7 basis points in favor of the Canadian bond, its narrowest since Oct. 26.

(Reporting by Fergal Smith; Editing by Nick Zieminski)