CANADA FX DEBT-Canadian dollar weakens as flight to safety offsets oil price jump

By Fergal Smith

TORONTO, March 2 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Monday, as safe-haven gains for the greenback countered a jump in oil prices and domestic data that showed increased factory sector activity.

The loonie CAD= was trading 0.4% lower at 1.37 per U.S. dollar, or 72.99 U.S. cents, after moving in a range of 1.3638 to 1.3718.

"Geopolitical risk and risk-off still dominate," said Sarah Ying, head of foreign exchange strategy at CIBC Capital Markets.

"USDs are the de facto haven currency given poor performance in traditional defensive currencies such as the yen or Swiss (franc). And given little alternative for investors seeking havens, the USD leg should be stronger, and overshadow any oil benefit seen by the Canadian dollar."

The U.S. dollar .DXY rose the most since July against a basket of major currencies as the U.S.-Israeli air war against Iran expanded.

The price of oil was up 5.9% at $70.96 a barrel as the conflict forced shutdowns of oil and gas facilities across the Middle East and disrupted shipping in the crucial Strait of Hormuz.

Oil is one of Canada's major exports. Much of those exports go to the United States but Canada has ambitions to diversify its trade.

India and Canada will aim to conclude a free trade pact by the end of this year, Prime Minister Mark Carney said during his first visit to New Delhi.

Canada's manufacturing sector grew for a second straight month in February. The S&P Global Canada Manufacturing Purchasing Managers' Index rose to 51.0 last month from 50.4 in January, posting its highest level since January 2025.

Canadian government bond yields moved higher across the curve, tracking moves in U.S. Treasuries, as the jump in energy prices raised worries about escalating inflation.

The 10-year CA10YT=RR was up 10.1 basis points at 3.229%, rebounding after it touched on Friday a three-month low at 3.128%.