CANADA FX DEBT-Canadian dollar weakens as Iran uncertainty clips risk appetite

By Fergal Smith

TORONTO, Jan 13 (Reuters) - The Canadian dollar edged lower against its U.S. counterpart on Tuesday as a downturn in stocks and recent widening of yield spreads weighed on the commodity-linked risk-sensitive currency.

The loonie CAD= was trading 0.1% lower at 1.3890 per U.S. dollar, or 71.99 U.S. cents, after trading in a range of 1.3857 to 1.3898.

"Stocks have given it up and it feels to me like this is a bit of Iran fears picking up," said Erik Bregar, director, FX & precious metals risk management at Silver Gold Bull. "I think that's why stocks are at their lows along with the loonie."

U.S. stock indexes fell despite an expected increase in inflation that kept bets alive for Federal Reserve interest rate cuts this year, while the safe-haven U.S. dollar .DXY posted gains against a basket of major currencies.

U.S. President Donald Trump urged Iranians to keep protesting and said help was on the way, without giving details, as Iran's clerical establishment pressed its crackdown against the biggest demonstrations in years.

Iran, like Canada, is a major oil producer. U.S. crude oil futures CLc1 were up 3% at $61.26 a barrel on concerns about potential supply disruptions.

"Zooming out, you can make the argument that yield spreads are in play again, so ever since Friday's Canadian jobs report," Bregar said.

Data on Friday showed a slowdown in the pace of Canadian job creation and a jump in the unemployment rate to 6.8%.

The Canadian 2-year yield CA2YT=RR eased about half a basis point to 2.560%, while it was trading 96 basis points below its U.S. equivalent. The gap was much less, at about 87 basis points, earlier this month.