C$ at more than 4-month low, breaks through C$1.10

TORONTO: The Canadian dollar weakened to a more than four-month low against the greenback on Tuesday, breaking through the psychologically key C$1.10 level as broad demand for the US dollar saw the loonie extend the previous session's selloff.

A reassessment of the future path of monetary policy in the United States gave the greenback its strength the day after research released by the San Francisco Fed showed investors expect the Federal Reserve to keep interest rates lower for longer, and to raise them more slowly, than policymakers expect.

Weaker-than-anticipated housing starts figures for August also weighed on the Canadian dollar, though analysts say there is not much in the way of top-tier domestic economic data this week to drive the loonie.

But the currency's losses accelerated after it pierced the C$1.10 level, which had posed technical resistance for the currency pairing on different occasions in July and August.

"We're at a pretty strong inflection point right now. This C$1.10 level is big from a psychological perspective and we've been stopped out here before," said Scott Smith, senior market analyst at Cambridge Mercantile Group in Calgary.

"If we break out here, things could escalate quickly."

The Canadian dollar was at C$1.1015 to the greenback, or 90.79 US cents, weaker than Monday's close of C$1.0973, or 91.13 US cents. The loonie hit a session low of C$1.1024, its lowest level since late April.

From here, there is the potential for momentum to take the US dollar-Canadian dollar pairing up to C$1.11, or markets could see some consolidation that could take it back to the low C$1.09s, said Smith.

Still, as investors have shown their willingness to buy the currency pairing on any dips, "I don't think we'll see much loonie strength past the C$1.09 figure," he said.

Canadian government bond prices were lower across the maturity curve, with the two-year down 3-1/2 Canadian cents to yield 1.142 percent and the benchmark 10-year down 20 Canadian cents to yield 2.164 percent.