The loonie was trading 0.9% lower at 1.2801 to the greenback, or 78.12 U.S. cents, its biggest decline since Oct. 28. It touched its weakest level since Jan. 11 at 1.2822.
As recently as last Thursday, the loonie was trading at its strongest in nearly three years, touching 1.2586.
"The Canadian has pulled back in what could be the slight unwinding of a very crowded trade; long risk, short U.S. dollars," said Michael Goshko, corporate risk manager at Western Union Business Solutions.
U.S. stocks suffered their biggest one-day percentage drop in three months and the U.S. dollar was boosted by safety buying as investors turned more cautious on worries about the economic impact of the COVID-19, and after the U.S. Federal Reserve expressed concerns about the pace of the economic recovery.
Canada is a major exporter of commodities, including oil, so the loonie tends to be sensitive to outlook for the global economy.
U.S. crude oil futures settled 0.5% higher at $52.85 a barrel after a massive drawdown in U.S. crude inventories, but gains were capped by concerns rising coronavirus cases will weigh on demand.
Canadian government bond yields were lower across the curve, with the 10-year down 1.9 basis points at 0.799%.
Canada's GDP report for November is due on Friday which could guide expectations for interest rates.
(Reporting by Fergal Smith; Editing by Alexander Smith and David Gregorio)
By Fergal Smith
