Loonie hits six-week low as oil, equities fall

(Reuters) - The Canadian dollar touched a six-week low against the greenback on Thursday as oil prices tumbled and a renewed sell-off in domestic and U.S. stock markets prompted investors to proceed with caution.

Commodity-linked currencies, such as the Canadian dollar tend to underperform when stocks fall. The loonie has retreated nearly 3 percent since Wall Street began to head sharply lower on Friday.

After two sessions of relative calm, stocks resumed their declines on Thursday, with Toronto's main stock index (.GSPTSE) ending down 1.7 percent, while the U.S. benchmark S&P 500 (.SPX) lost more than 4 percent. [.TO] [.N]

"All these things are related - equities go down, people see that as a worrying sign about the economy, commodity prices come off, the loonie weakens as a result," said Amo Sahota, director at Klarity FX in San Francisco.

At 4:57 p.m. EST (2157 GMT), the Canadian dollar was trading at C$1.2601 to the greenback, or 79.36 U.S. cents, down 0.3 percent. The currency hit a session low of C$1.2516, its weakest since Dec. 28.

The price of oil, one of Canada's major exports, hit a seven-week low, with U.S. crude prices ending down 64 cents at $61.15 a barrel. [O/R]

"It's really clear to me that oil has become very much a focus point again for loonie traders," said Sahota.

Bank of Canada Senior Deputy Governor Carolyn Wilkins told Reuters in an interview that while high household debt was the biggest vulnerability facing the economy and uncertainty about NAFTA was weighing on the outlook, the central bank was factoring in the economy's overall performance as it makes its next rate decision.

The central bank last month raised its benchmark interest rate to 1.25 percent, its third hike since July. Markets expect the bank to pause at its next meeting in March but have nearly fully priced in another increase by May.

Investors will turn their attention to Friday's domestic jobs report, with the economy forecast to have added 10,000 jobs in January after seeing robust growth in 2017.

The report has become a major focal point for the market since the Bank of Canada said the labor market was tightening, Sahota said.

Canadian government bond prices largely rose, with the two-year up 2.5 Canadian cents to yield 1.834 percent. The 10-year rose 1 Canadian cent to yield 2.373 percent.

(Reporting by Fergal Smith in Toronto and Leah Schnurr in Ottawa; Editing by Peter Cooney)