By Fergal Smith
TORONTO (Reuters) - The Canadian dollar weakened on Monday to its lowest level in more than two weeks against its U.S. counterpart as investors dumped riskier assets on fears of a Russian attack on Ukraine.
The loonie was trading 0.5% lower at 1.2650 to the greenback, or 79.05 U.S. cents, after touching its weakest level since Jan. 7 at 1.2701.
"While risk-off price action has been abundant today due to geopolitical factors, it took the nosedive in U.S. equity markets to trigger a fresh wave of risk aversion in markets," said Simon Harvey, head of FX analysis for Monex Europe and Monex Canada.
Wall Street plunged in a broad-based sell-off as the geopolitical risk added to investor worries about aggressive policy tightening by the Federal Reserve.
Canada is a major producer of commodities, including oil, so the loonie tends to be sensitive to moves in risk appetite.
U.S. crude prices settled 2.2% lower at $83.31 a barrel, while the safe-haven U.S. dollar gained ground against a basket of major currencies.
Speculators had turned bullish on the Canadian dollar for the first time since November, data from the U.S. Commodity Futures Trading Commission showed on Friday.
The shift in positioning comes ahead of a potential interest rate hike by the Bank of Canada at a policy announcement on Wednesday. Money markets see about a 65% chance of a hike but expectations have dipped from 70% on Friday.
Investors are coming to the view that expected multiple interest rate hikes this year by the Bank of Canada will bring price pressures under control, albeit at a cost of slower economic growth.
Canadian government bond yields were lower across the curve. The 10-year eased 3.1 basis points to 1.761%, extending its pullback from the highest level in nearly three years last Wednesday at 1.905%.
(Reporting by Fergal Smith; Editing by Mark Heinrich and Nick Zieminski)