TORONTO (Reuters) - The Canadian dollar weakened to its lowest level in more than two years against its U.S. counterpart on Tuesday before paring much of its decline, as an uncertain outlook for the global economy continued to depress investor sentiment.
World stocks headed back towards their lowest levels in almost two years, with sentiment weighed down by unease about rapidly rising interest rates, an escalation in the Ukraine war and China stepping up pandemic measures.
The price of oil, one of Canada's major exports, extended the previous session's decline on concern over global demand.
U.S. crude prices fell 1.5% to $89.81 a barrel, while the Canadian dollar was trading 0.1% lower at 1.3785 to the greenback, or 72.54 U.S. cents, after touching its weakest since May 2020 at 1.3855.
Speculators have raised their bearish bets on the Canadian dollar to the highest in one year, data from the U.S. Commodity Futures Trading Commission showed on Friday. As of Oct. 4, net short positions had increased to 21,407 contracts from 17,666 in the prior week.
U.S. inflation data on Wednesday and Thursday could help guide expectations for further aggressive interest rate hikes by the Federal Reserve.
The Bank of Canada has also been tightening policy rapidly to tackle inflation. On Sunday, BoC Governor Tiff Macklem said there is scope to slow the economy without putting a lot of people out of work based on an "exceptionally high number" of job vacancies in the labor market.
Canadian government bond yields were higher across a steeper curve as the market reopened following the Thanksgiving Day holiday on Monday.
The 10-year touched its highest level since June 21 at 3.470% before dipping to 3.448%, up 5.4 basis points on the day.
(Reporting by Fergal Smith; Editing by Bernadette Baum)