TORONTO, Oct 2 (Reuters) - The Canadian dollar weakened to a four-month low against its U.S. counterpart on Thursday as the price of oil fell more than 2% and investors worried that expected negotiations around the renewal of the U.S.-Mexico-Canada trade agreement will proceed with difficulty.
The loonie was trading 0.2% lower at 1.3960 per the U.S. dollar, or 71.63 U.S. cents, after touching its weakest intraday level since May 16 at 1.3986.
"It's no surprise the Canadian dollar has broken down on the same day as oil," said Adam Button, chief currency analyst at investingLive. "The market is clearly scared of what's happening with OPEC."
The price of oil, one of Canada's major exports, settled 2.1% lower at $60.48 a barrel on concerns about oversupply in the market ahead of a meeting of the OPEC+ group over the weekend, while the U.S. dollar rose against a basket of major currencies as traders weighed the impact of a U.S. government shutdown.
"The market is finally waking up to the risk around USMCA," Button said. "It's impossible to imagine a smooth USMCA negotiation."
The USMCA, which has shielded much of Canada's exports from U.S. tariffs, is up for joint review in 2026. Separate public consultations by the U.S., Canada and Mexico on the trade pact have begun in recent weeks.
The Canadian dollar is set to strengthen over the coming year against its U.S. counterpart as expected Federal Reserve interest rate cuts weigh on the greenback, but uncertain prospects for the USMCA could put that forecast at risk, a Reuters poll found.
The Bank of Canada is considering changes to how it measures preferred inflation metrics to give it a better idea of how external shocks are affecting the economy, Deputy Governor Rhys Mendes said.
Canadian government bond yields moved lower across the curve, with the 10-year down 1.8 basis points at 3.167%.Reporting by Fergal
Smith Editing by Marguerita Choy
