CAD hits 3-week low amid U.S. debt ceiling uncertainty

FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar weakened to a near three-week low against U.S. counterpart on Wednesday, tracking declines for other risk-sensitive currencies, as investors worried that U.S. debt ceiling talks are not making sufficient progress.

The loonie was trading 0.6% lower at C$1.3590 to the greenback, or 73.58 U.S. cents, after touching its weakest intraday level since May 4 at 1.3605.

"I think it's a concern that there is no obvious sign at this point of getting a (debt ceiling) deal put together quickly," said Shaun Osborne, chief currency strategist at Scotiabank. "It's going to be probably a bumpy ride for currencies into next week or so."

The safe-haven U.S. dollar rose against a basket of major currencies and Wall Street stocks fell as time ran short for the U.S. to raise its debt ceiling and avoid default.

Declines for the other dollar bloc currencies, the Australian dollar and the New Zealand dollar, were even steeper than for the loonie as the Reserve Bank of New Zealand signaled an end to interest rate hikes.

"The CAD is quite likely seeing a bit of spillover from quite an aggressive selloff for both the Aussie and Kiwi today," Osborne said.

Meanwhile, the price of oil settled nearly 2% higher at $74.34 a barrel after a large unexpected drawdown in U.S. crude inventories and a warning from the Saudi energy minister that raised the prospect of further OPEC+ production cuts. Oil is one of Canada's major exports.

Canadian government bond yields rose across the curve, tracking moves in U.S. Treasuries. The 10-year touched its highest level since March 9 at 3.283% before dipping to 3.266%, up 5.4 basis points on the day.

(Reporting by Fergal Smith, Editing by Nick Zieminski)