Canadian dollar weakens to seven-week low as oil falls

TORONTO (Reuters) - The Canadian dollar weakened to set a seven-week low against its U.S. counterpart on Friday as oil fell, while hotter-than-expected U.S. inflation and recent tightening of the U.S. presidential election race supported the greenback.

U.S. crude oil futures settled 88 cents lower at $43.03 a barrel as swelling Iranian exports reinforced fears of a global glut. [O/R]

The U.S. dollar <.DXY> rose against a basket of major currencies as U.S. consumer prices increased more than expected in August, pointing to a steady build-up of inflation that could allow the Federal Reserve to raise interest rates this year.

Increased probability that Republican candidate Donald Trump will win the U.S. presidential election added to support for the greenback, said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets.

Trump has proposed a discounted 10 percent levy for businesses that bring back profits held overseas.

The repatriation proposal "would bring a wall of money back into the U.S. from abroad in 2017," Anderson said, adding that a Republican-appointed Federal Open Market Committee would probably be more hawkish than a Democratic appointed FOMC.

Canadian manufacturing sales edged up 0.1 percent in July from June. The gain was well below the 1 percent rise forecast by analysts in a Reuters poll.

The Canadian dollar closed at C$1.3214 to the greenback, or 75.68 U.S. cents, weaker than Thursday's close of C$1.3160, or 75.99 U.S. cents.

The currency's strongest level of the session was C$1.3143, while it touched its weakest since July 27 at C$1.3248.

For the week, the loonie lost 1.3 percent.

Losses for Mexico's peso, however, were even greater, with the peso hitting an historic low of 14.9638 per Canadian dollar .

The peso's plunge is seen putting further pressure on Canadian exporters, who have struggled with weak growth this year.

Speculators pared bullish bets on the Canadian dollar for the second straight week, Commodity Futures Trading Commission data showed. Net long Canadian dollar positions dipped to 17,058 contracts in the week ended Sept. 13 from 20,905 contracts in the prior week.

Canadian government bond prices were mixed as the yield curve flattened in sympathy with U.S. Treasuries. The two-year bond dipped 1 Canadian cent to yield 0.581 percent and the benchmark 10-year rose 7 Canadian cents to yield 1.19 percent.

Foreign investment in Canadian securities slowed in July for the fourth straight month.

(Reporting by Fergal Smith; Editing by Chizu Nomiyama and Dan Grebler)

By Fergal Smith