Oil-linked currencies pressured by lower oil prices, sterling slips

By Ritvik Carvalho

LONDON (Reuters) - Commodity-linked currencies such as the Canadian dollar and the Norwegian crown were on the back foot on Wednesday, dragged lower by declining oil prices, while sterling wallowed near two-month lows.

Oil prices held near multi-month lows on Wednesday as investors discounted evidence of strong compliance by OPEC and non-OPEC oil producers with a deal to cut global output.

That pulled the commodity-linked complex of currencies lower with the Norwegian crown languishing close to 5-month lows against the dollar after falling half a percent on Tuesday.

It last traded at 8.5564 crowns per dollar, down 0.2 percent on the day.

The Canadian dollar, which fell about 0.4 percent on Tuesday, traded at C$1.3296 per dollar , down 0.2 percent on the day. It moved further away from a 3-1/2-month high of C$1.3165 reached a week ago after Bank of Canada's governor expressed support for an interest rate hike.

The Australian dollar fell 0.3 percent to $0.7550 and the New Zealand dollar was 0.2 percent lower at $0.7228 .

"The culprit behind their (commodity currencies) lackluster performance is the oil price in recent days," said Valentin Marinov, head of FX strategy at Credit Agricole (PA:CAGR) in London.

"The key question for the FX markets on the day is the extent to which the oil price weakness will ultimately grow into a broad-based risk-off move."

The safe-haven yen, which tends to gain when "risk-on" commodity currencies decline, rose 0.3 percent to 111.120 yen per dollar.

The dollar itself stayed tightly range-bound, almost flat against a basket of peers at 97.764. (DXY)

The euro was also flat at $1.1132, off a seven-month peak of $1.1296.

Sterling hit fresh two-month lows, extending its declines after Bank of England governor Mark Carney said on Tuesday that now was not the time to raise British interest rates. It was last 0.3 percent lower at $1.2590.

Last week three out of eight BoE policymakers voted in favor of a rate hike and raised hopes for a near-term tightening.

Prime Minister Theresa May is still in talks with Northern Ireland's Democratic Unionists' Party, nearly two weeks after Britain's election produced no clear majority for any party.

"Sterling is weak as this political risk premium embedded in the pound looks like it is set to extend into next week with the DUP and the Conservative Party still not finalizing talks," said Stephen Gallo, currency strategist with BMO Capital Markets in London.

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