C$ weakens to one-week low as oil tumbles

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar weakened to a one-week low against its U.S. counterpart on Monday as lower oil prices offset solid domestic data, but losses were restrained as investor attention turned to a speech by Federal Reserve Chair Janet Yellen on Friday.

Hesitation ahead of Yellen's speech capped gains for the U.S. dollar (.DXY) against a basket of major currencies a day after a top Federal Reserve official made comments perceived as hawkish.

"I think it's going to be pretty directionless for the remainder of this week until we get through to Friday (when Yellen speaks)," said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets.

"There is a big question market on what we might get (from Yellen)," Chandler added, noting the inconsistency of recent comments by Fed officials.

U.S. crude oil futures settled down $1.47 at $47.05 a barrel on worries about burgeoning Chinese fuel exports, more Iraqi and Nigerian crude shipments and a rising U.S. oil rig count.

Canadian wholesale trade increased by 0.7 percent in June from May, the third consecutive monthly gain. Analysts surveyed by Reuters had forecast a 0.1 percent increase.

The Canadian dollar closed at C$1.2950 to the greenback, or 77.22 U.S. cents, weaker than Friday's official close of C$1.2858, or 77.77 U.S. cents.

The currency's strongest level of the session was C$1.2874, while it touched its weakest since Aug. 15 at C$1.2965.

On Friday, the loonie snapped a nearly two-week winning streak as domestic retail sales data disappointed.

Speculators reduced bullish bets on the Canadian dollar for a third straight week, Commodity Futures Trading Commission data showed on Friday. Net long Canadian dollar positions fell to 12,473 contracts in the week ended Aug. 16 from 15,366 contracts in the prior week.

Canadian government bond prices were higher across the maturity curve in sympathy with U.S. Treasuries as a jump in an index of equity market volatility (.VIX) supported demand for safe haven assets.

Canadian government bond prices were higher across the maturity curve, with the two-year bond up 3.5 Canadian cents to yield 0.555 percent and the benchmark 10-year rising 50 Canadian cents to yield 1.025 percent.

The curve flattened as the spread between the 2-year and 10-year yields narrowed by 3.5 basis points to 47 basis points, indicating outperformance for longer-dated maturities.

On Thursday, the spread hit its narrowest since June 2008 at 46.8 basis points.

(Reporting by Fergal Smith; Editing by Bernadette Baum)