OTTAWA: The Canadian dollar firmed modestly against the greenback on Wednesday, getting some respite on the last day of a tough 2014 that has the loonie on track for its worst performance in six years.
The Canadian dollar started the year as many investors' top short position as the Bank of Canada was expected to remain accommodative.
After a sell-off in the first three months, the loonie managed to regain some ground into the summer, only to be knocked lower again by the plunge in oil prices and a Federal Reserve that is moving closer to raising interest rates.
The Canadian dollar is down 8.4 percent for the year, its biggest decline since 2008, the start of the global financial crisis.
"It's definitely been a challenging one for the loonie and is likely to continue into 2015," said Scott Smith, senior market analyst at Cambridge Mercantile Group in Calgary.
At the top of investors' minds in 2015 is a Fed that is expected to lift rates before the Bank of Canada does, extending favor for the greenback to the detriment of the loonie.
The potential for another slide in oil prices is a big risk for the currency, as oil is a major export for Canada. The weakness continued on Wednesday with crude down $1.23 at $52.89 a barrel.
Despite the drop in oil, the Canadian dollar found some strength in morning trade and was at C$1.1595 to the greenback, or 86.24 US cents, stronger than Tuesday's close of C$1.1607, or 86.15 US cents.
"Today what we're seeing is just technical trading and some year-end rebalancing that's driving this loonie strength," said Smith.
While the loonie is unlikely to firm much beyond C$1.16, that level could act as a midpoint until the currency takes another leg lower in the new year, said Smith.
Investors continued to keep an eye on developments out of Greece, which dissolved parliament ahead of next month's election. The early election has cast some doubt on the country's international bailout.
Canadian government bond prices were higher across the maturity curve, with the two-year up 1 Canadian cent to yield 1.011 percent and the benchmark 10-year up 14 Canadian cents to yield 1.796 percent.
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