TORONTO: The Canadian dollar softened against the greenback on Tuesday amid uncertainty over whether crude oil prices have bottomed after oil resumed its retreat after recouping some recent losses on Monday.
Canada is a major exporter of crude and its currency has fallen in recent months as crude prices have plunged.
Last week, the Organization of the Petroleum Exporting Countries decided not to cut back its production targets, leaving the market nervous about how low crude prices can go. Prices have been on a five-month decline and touched their lowest level in five years on Monday before rebounding.
"In terms of the trade today, oil prices are down, so (oil and the Canadian dollar are) closely correlated there, for sure," said Mazen Issa, senior Canada macro strategist at TD Securities.
At 9:30 a.m. (1430 GMT), the Canadian dollar was at C$1.1385 to the greenback, or 87.83 US cents, weaker than Monday's close of C$1.1328, or 88.28 US cents. But it was outperforming many other major currencies.
Mazen said the Canadian dollar could also be reacting to some of the expectations surrounding Wednesday's Bank of Canada policy statement.
"The emerging view is that you've had strong data growth and inflation numbers, but the plunge in oil prices kind of gives a bit of an out, if you will, for the (Bank of Canada) governor to signal some cautiousness," said Issa, adding that TD believes the central bank could end up offering a more balanced view than some people expect.
"If they are a little bit more balanced tomorrow than people may be expecting, then you could see a little bit more of a stronger CAD against the US dollar."
Canadian government bond prices were mixed across the maturity curve, with T-bills higher and longer-dated maturities slipping. The two-year bond was flat, with a yield of 0.991 percent and the benchmark 10-year bond was up 16 Canadian cents to yield 1.915 percent.
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