TORONTO/OTTAWA: The Canadian dollar weakened to an 11-year low against the greenback on Thursday as the price of oil slid further, contrasting with gains for fellow commodity currencies, the Australian and New Zealand dollars.
With the sustained drop below $40 a barrel for oil this week, the loonie has fallen through key technical barriers and taken 2 percent off the currency so far this week.
"Obviously oil is going to continue to be a big driving factor," said Scott Smith, senior market analyst at Cambridge Global Payments in Toronto.
Oil gave up Thursday's earlier gains as persistent oversupply concerns offset a surprise drop in US crude inventories after 10 weekly increases. US crude prices settled at $36.76 a barrel, down 1.1 percent.
Expectations that the US Federal Reserve will begin raising interest rates next week has lifted the US currency to the detriment of the Canadian dollar.
Although a further push to C$1.3700 is not out of the question, the currency pair is getting close to where US dollar-long investors may take some profit, said Smith.
"There's a higher probability of consolidation than another leg higher at this junction," he said.
The Canadian dollar ended the North American trading session at C$1.3632 to the greenback, or 73.36 US cents, weaker than the Bank of Canada's official close of C$1.3564, or 73.72 US cents.
The currency's strongest level of the session was C$1.3533, while its weakest level was C$1.3640.
Against the Australian dollar, the Canadian dollar weakened to C$0.9922, having hit its weakest level in 10 months at C$0.9939 after Australian employment surged for the second straight month.
The Canadian dollar also underperformed against the New Zealand dollar after New Zealand's central bank cut its benchmark interest rate to match a record low of 2.50 percent but virtually shut the door on further easing.
Canadian government bond prices were mixed across the maturity curve, with the two-year price down 1.5 Canadian cents to yield 0.544 percent and the benchmark 10-year rising 3 Canadian cents to yield 1.487 percent.
The Canada-US two-year bond spread was 2 basis points wider at -40.3 basis points, while the 10-year spread was 2.8 basis points wider at -74.5 basis points, extending recent outperformance for Canadian bonds.
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