TORONTO: The Canadian dollar weakened against the greenback on Wednesday as it tried for a second day in a row to sustain a move past resistance at C$1.10 as markets were focused on just how soon the Federal Reserve might start to lift interest rates.
The loonie saw little reaction to data that showed industrial capacity rose in the second quarter, though the mostly second tier domestic economic data on tap this week is not expected to be a significant driver of the currency.
The Canadian dollar has lost about 1 percent so far this week, hurt by broad demand for the greenback sparked by a Fed study earlier this week that investors expect the central bank to keep rates lower for longer than policymakers themselves expect.
Although the fundamentals point to a weaker loonie, there could be the potential for the US dollar to see a pullback after two months of gains, said Shaun Osborne, chief currency strategist at TD Securities in Toronto.
"There's been an uninterrupted rally in the US dollar that is really quite unusual. It's rare that we see these moves for more than eight weeks or so without some sort of correction forming," Osborne said.
"I rather think that although a lot of things suggest US dollar-Canadian dollar should be higher, we may struggle to really push on through C$1.10 here at the moment."
The Canadian dollar was at C$1.0984 to the greenback, or 91.04 US cents, weaker than Tuesday's close of C$1.0971, or 91.15 US cents.
The loonie touched a low of C$1.1014 in overnight trading but was unable to hold the C$1.10 mark, which has acted as technical resistance several times in August.
Analysts expect the Canadian dollar is likely to continue to take its cues from the direction of the greenback. Monetary policy could remain at the fore heading into next week's Fed meeting, with investors speculating over whether the central bank will change the language in its statement.
While Osborne still expects to see the loonie fall to C$1.12 by the end of the year, the currency could consolidate to around C$1.08 in the next couple of weeks, he said.
Canadian government bond prices were lower across the maturity curve, with the two-year off 1-1/2 Canadian cents to yield 1.148 percent and the benchmark 10-year down 18 Canadian cents to yield 2.198 percent.
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