TORONTO: The Canadian dollar hit a fresh 5-1/2 year low against the greenback on Monday as oil prices continued to weaken, pushing the currency towards a key psychological support level at C$1.20 to the US dollar.
Oil is a major Canadian export and crude prices showed no sign of escaping their downward spiral. Meanwhile, the US dollar edged higher as investors who expect a stronger greenback were given a chance to reload after it weakened on Friday after data showed a surprise fall in US wages in December.
US crude for February was down $1.13 at $47.23 per barrel and the February Brent contract was down $1.31 at $48.80 a barrel. Both hit their lowest since April 2009.
Analysts at Goldman Sachs lowered their three-month price forecast for Brent to $42 a barrel from $80 and cut their US crude forecast to $41 from $70, adding it would stay near $40 for most of the first half of 2015.
"All eyes are on oil prices, looking for stabilization, but yet every day or every few sessions, it's reaching deeper lows," said Camilla Sutton, chief currency strategist at Scotiabank.
"All in all the trend is a very strong one: a strong US dollar, with global investors really looking to add to long US dollar positions."
At 9:35 a.m. (1435 GMT) the Canadian dollar was at C$1.1916 to the greenback, or 83.92 US cents. That was much weaker than Friday's finish of C$1.1866, or 84.27 US cents, and the currency's lowest point since May 2009.
Sutton said analysts were looking to C$1.20 as a key level where the Canadian dollar could find support.
"We're now talking about whole numbers and C$1.20 is the next key level. It's a very important one because it is a big psychological shift going from the teens up to C$1.20," she said.
Market watchers anticipating a speech on Tuesday by Bank of Canada Deputy Governor Timothy Lane in which he was expected to provide guidance on how oil prices are affecting the Canadian economy.
"That's an important one because hopefully we'll get a little bit more clarity on how the Bank of Canada is using new oil prices in their modeling," Sutton said.
The traditional wisdom is that lower oil prices hurt Canada's western provinces, where oil and gas extraction dominates the economy, but boost the fortunes of Ontario, Canada's most populous province, which has a big manufacturing and export industry, which benefits from both lower energy costs and a lower Canadian dollar.
Canadian government bond prices were higher across the maturity curve. The two-year rose 2.5 Canadian cents to yield 0.934 percent and the benchmark 10-year climbed 14 Canadian cents to yield 1.641 percent.
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