TORONTO: The Canadian dollar strengthened on Tuesday after touching its weakest level against the greenback in more than five years, helped by a rebound in crude prices after Monday's big sell-off.
Oil, which sank about 4 percent in the previous session, set new five-year lows on Tuesday before recovering, with some buyers hopeful that prices, which have tanked more than 40 percent since June, are hitting bottom.
The Canadian dollar has been particularly sensitive to movements in the price of oil due to the country's heavy concentration of producers.
"You're looking at a bit of a bounce from what was probably an oversold day yesterday, both in oil as well as on the currency," said David Tulk, chief Canada macro strategist with TD Securities.
"It's more generally a day where you're seeing a little bit more reflection and unwinding of some of the big moves we've seen previously."
At 9:26 a.m. (1426 GMT), the Canadian dollar was at C$1.1449 to the greenback, or 87.34 US cents, stronger than Monday's close of C$1.1482, or 87.09 US cents, its weakest close since July 13, 2009.
The currency briefly broke the key psychological C$1.15 level earlier in Tuesday's session.
"Oil probably still has more downside in here," Tulk said, adding that disappointing financial results from Canadian banks and an economy that lags that of the United States would probably also keep pressure on the Canadian dollar.
Reasonably upbeat US retail sales data on Thursday and a slightly more hawkish Fed next week would give even more lift to the US dollar, Tulk said.
Some cautious comments from two centrist Federal Reserve policymakers on Monday put a slight damper on the US dollar's rally. San Francisco Fed President John Williams said the phrase "considerable time" to describe the period that interest rates will remain near zero was appropriate, while Atlanta Federal Reserve Bank President Dennis Lockhart said he was not in a rush to drop the words.
Other recent comments by senior Fed officials, however, hinted that the central bank may soon drop this closely watched language.
Canadian government bond prices were higher across the maturity curve, with the two-year rising 3.5 Canadian cents to yield 1.008 percent and the benchmark 10-year adding 13 Canadian cents to yield 1.879 percent.
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