TORONTO, Oct 27 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Tuesday as the price of oil fell and investors turned cautious ahead of an expected interest rate hike by the Bank of Canada.
The loonie was trading 0.3% lower at 1.4050 per U.S. dollar, or 71.17 U.S. cents, extending its pullback from a five-week high on Friday at 1.3966.
"I think traders are taking some money off the table," said Rahim Madhavji, president at KnightsbridgeFX.com. "Everyone is looking forward to a pivotal day."
Investors see a roughly 75% chance the BoC raises its benchmark interest rate by 25 basis points to 2.50% on Wednesday in a preemptive move to stop energy-led inflation from spreading to the rest of the economy. It would be the first rate hike since July 2023.
The Federal Reserve is also set to announce its latest policy decision on Wednesday.
The US dollar rose against a basket of major currencies rates as US data suggested business spending on equipment maintained a robust growth pace in the third quarter.
Progress in trade talks between the United States and Canada would be positive for the loonie, Madhavji said.
The US and Canada are working on a deal to ease US tariffs on Canadian steel and autos, two US and four Canadian sources have said.
The price of oil, one of Canada's major exports, fell as traders focused on Middle East peace talks. US crude oil futures settled 1.8% lower at $99.90 a barrel.
Canadian bond yields edged lower across the curve.
The 2-year was down by nearly one basis point at 3.367%, while it fell 3.1 basis points further below the equivalent US rate to a gap of about 137 basis points in favor of the US note.
Reporting by Fergal Smith; Editing by Alistair Bell
