The Canadian dollar weakened against its U.S. counterpart on Thursday, pulling back from a five-week high as oil prices sunk on disappointment that an OPEC-led extension of production cuts did not go further.

The currency touched its strongest level since April 19 early in the session but reversed course after news out of the Vienna meeting of the Organization of the Petroleum Exporting Countries and some non-OPEC producers that existing production cuts would be extended to March 2018.             

"We've had a sharp reversal after the OPEC news this morning," said Blake Jespersen, managing director for foreign exchange sales at BMO Capital Markets. "I think the market was maybe hoping for an extended cut or broader support from more participants." 

The loonie traded at 74.19 cents US as of Thursday’s market close, down 0.003 cents from Wednesday at 4 p.m. ET.

The currency's weakest level of the session was $1.3494, while it touched its strongest since April 19 at $1.3388.

Oil prices tumbled five per cent, the sharpest daily percentage slide in crude prices since early March.      

Jespersen said the decline in the value of the loonie had likely capped its sharp rally since early May that had veered into overbought territory on a technical basis. With the OPEC deal out of the way, attention would turn back to interest rate differentials, he said.

The gap between Canada's two-year yield and its U.S. equivalent narrowed by one basis point to a spread of -58 basis points, near its smallest gap since May 1.

Shorter-dated Canadian bonds have increasingly underperformed since Wednesday's rate decision by the Bank of Canada.

While holding rates steady, the Canadian central bank was more upbeat about the economy than some investors had expected, dropping a reference to the excess capacity in the economy being "material" and noting strong spending by Canadians along with a housing boom and job growth.             

Dallas Federal Reserve Bank President Robert Kaplan said late on Wednesday that he felt "very strongly" that U.S. trade relationships with Canada and Mexico help U.S. competitiveness. The remarks came as U.S. President Donald Trump looks at renegotiating the North American Free Trade Agreement. 

Canadian government bond prices were mixed across a flatter yield curve. The two-year dipped half a cent to yield 0.718 per cent, and the 10-year rose 16 cents to yield 1.461 per cent.