TORONTO: The Canadian dollar fell through C$1.16 to the US dollar on Monday, touching its weakest level in 5-1/2 years as crude prices hit new multiyear lows.
The Organization of the Petroleum Exporting Countries reaffirmed on Sunday its intention not to cut output despite a global fuel glut, reasoning that any output reduction would have little impact on price but would mean ceding market share.
Canada is a major exporter of crude and the loonie's fortunes have tracked those of the oil price since it started dropping in June, with the Canadian currency falling to levels not seen since July 2009.
"Last week, we saw Canada begin to post losses against some of the other majors and that was for the first time in quite some time," said Brad Schruder, director, foreign exchange sales, at BMO Capital Markets.
"There's now talk of $45 oil, which I think is a little bit aggressive at the moment, but if this trend continues, I wouldn't be surprised if you saw USD/CAD hovering near just shy of C$1.20."
At 9:59 a.m. (1459 GMT), the Canadian dollar was at C$1.1595 to the greenback, or 86.24 US cents, weaker than Friday's close of C$1.1572, or 86.42 US cents. Earlier, it touched C$1.1606, or 86.16 US cents.
"If you need to buy US dollars you most certainly need to err on the side of caution in these last couple of weeks of the year because the storm is upon us," Schruder said. He added, however, that a C$1.20 loonie would likely be the trend for January, not December.
All eyes will be on the US Federal Reserve on Wednesday to see how oil's retreat fits into the central bank's decision-making.
A slew of Canadian economic data, including inflation figures for November on Friday, will also be in focus, but Schruder said that given the influence of oil prices, the figures will be heavily discounted by the market.
Canadian government bond prices were mixed across the maturity curve with shorter-term treasury bills higher and longer-term bonds lower. The two-year was down 3.5 Canadian cents to yield 0.98 percent and the benchmark 10-year was off 27 Canadian cents to yield 1.787 percent.
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