TORONTO: The Canadian dollar touched a more than four-month low against the greenback on Tuesday before recovering to end little changed as the currency pair failed to hold the closely watched C$1.10-level.
A reassessment of the monetary policy outlook in the United States gave the greenback some strength to the detriment of the loonie the day after research released by the San Francisco Federal Reserve Bank 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.
While the currency accelerated its losses in early trade after it pierced C$1.10, it was able to recover throughout the session. The C$1.10 mark has posed technical resistance for the currency pairing on several occasions in July and August.
"The thought was if we closed above that level, we could see some further upside moving forward," said Rahim Madhavji, president a KnightsbridgeFX.com in Toronto.
A move higher for the US dollar-Canadian dollar pair results in a weaker loonie.
"If we couldn't break past C$1.10 and sustain it for a close, we think it's going to be more rangebound trading," oscillating around C$1.09, Madhavji said.
The Canadian dollar ended the North American session at C$1.0971 per US dollar, or 91.15 US cents, a touch higher than Monday's close of C$1.0973, or 91.13 US cents. The loonie hit a session low of C$1.1032 - its lowest since late April.
Analysts say the Canadian dollar is likely to continue to take its cues from the greenback's direction as investors focus on the economic recovery south of the border and when the Fed will start to raise interest rates.
"Just the thought that the Fed might start to change a little bit of its tone at the next meeting, the market is trying to prepare itself in advance of that and that's been grinding the US dollar higher," Madhavji added.
Canadian government bond prices were lower across the maturity curve, with the two-year down 3.2 Canadian cents to yield 1.140 percent and the benchmark 10-year down 32 Canadian cents to yield 2.177 percent.
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