* Canadian dollar at C$1.2975, or 77.07 U.S. cents
* Loonie touches its weakest since May 8 at C$1.2988
* Oil prices fall 4 percent
* Bond prices higher across a flatter yield curve
By Fergal Smith
TORONTO, May 25 (Reuters) - The Canadian dollar weakened to a more than two-week low against its U.S. counterpart on Friday, pressured by a nearly $3 drop in the price of oil and broader gains for the greenback.
At 4 p.m. EDT (2000 GMT), the Canadian dollar CAD=D4 was trading 0.7 percent lower at C$1.2975 to the greenback, or 77.07 U.S. cents, its biggest decline since April 20. The currency touched its weakest level since May 8 at C$1.2988.
"Today's move mostly had to do with the pressure on oil," said Ronald Simpson, managing director, global currency analysis at Action Economics.
The price of oil, one of Canada's major exports, tumbled after Saudi Arabia and Russia discussed easing supply curbs that have helped push crude prices to their highest since 2014. crude oil futures CLc1 settled 4 percent lower at $67.88 a barrel, while the U.S. dollar .DXY climbed against a basket of major currencies as rising bond yields in Italy and brewing political instability in Spain weighed on the euro. have boosted bearish bets on the Canadian dollar, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed. As of May 22, net short positions had increased to 26,212 contracts from 23,656 a week earlier.
For the week, the loonie fell 0.7 percent. On Thursday, it had been pressured by the potential imposition of U.S. auto tariffs, after the Trump administration launched a national security investigation into car and truck imports. is a major exporter of autos to the United States so its economy could be hurt by U.S. auto tariffs.
Uncertain trade policy, including renegotiation of the North American Free Trade Agreement, and indebted consumers will encourage the Bank of Canada to leave its policy interest rate on hold at 1.25 percent next week, a Reuters poll predicted. Action Economics and some other forecasters expect the Bank of Canada, which has raised interest rates three times since last summer, to hike at the subsequent policy decision in July. That would help narrow the gap between Canadian and U.S. rates and boost the Canadian dollar, Simpson said.
There is about a 40-percent chance of concluding the renegotiation of NAFTA before Mexico's presidential election on July 1, Mexican Economy Minister Ildefonso Guajardo said. government bond prices were higher across a flatter yield curve in sympathy with U.S. Treasuries, with the 10-year CA10YT=RR rising 56 Canadian cents to yield 2.348 percent.