By Fergal Smith
TORONTO (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Thursday as a relief rally in global financial markets proved short-lived and despite data showing surprising growth in Canada's economy in July.
Investors began another cycle of selling both stocks and bonds as British Prime Minister Liz Truss said she would stick to her controversial plan to reignite economic growth and Fed officials gave no indication the U.S. central bank would moderate its plans to aggressively raise interest rates to bring down high inflation.
On Wednesday, financial markets had rallied on the Bank of England's move to support British bonds.
Canada's currency has been more closely correlated with movement in equity markets in recent weeks rather than traditional drivers, such as the price of oil, one of Canada's major exports.
"In this environment you can throw the currency handbook out the window," said Tony Valente, senior FX dealer at AscendantFX. "The CAD has been more correlated to risk sentiment then energy prices or economic fundamentals for that matter."
Oil gave back its earlier gains as traders awaited clarity on potential OPEC+ cuts next week. U.S. crude oil futures settled 1.1% lower at $81.23 a barrel, while the Canadian dollar was down 0.8% at 1.3715 to the greenback, or 72.91 U.S. cents.
The currency traded in a range of 1.3606 to 1.3755, after touching on Wednesday its weakest intraday level since May 2020 at 1.3832.
The Canadian economy grew 0.1% in July, compared with analysts' forecast for a 0.1% decline, while activity in August was most likely flat.
Canadian government bond yields were higher across the curve, tracking the move in U.S. Treasuries, in a shortened session ahead of Friday's National Day of Truth and Reconciliation holiday.
The 10-year rose 8.3 basis points to 3.170%.
(Reporting by Fergal Smith; Editing by Nick Zieminski and Jonathan Oatis)