TORONTO: The Canadian dollar firmed slightly against its US counterpart on Tuesday after four straight days of declines as investors booked some profits, but with no bottom in sight for plunging crude prices and global market sentiment negative, the loonie was expected to retreat further.
Volatile markets sent investors fleeing to safety a day after the Russian central bank hiked interest rates 650 basis points to 17 percent in a failed attempt to halt a collapse in the ruble and as oil prices fell to new 5-1/2-year lows.
Activity in China's factory sector contracted this month for the first time in seven months, the latest in a string of weak economic indicators that added to concerns about oil demand.
China is the second-largest oil consumer after the United States while Canada is a major exporter of oil.
"What you're seeing is a classic risk-off scenario ... Right now, we're brushing up against technical resistance levels, so there has been some measure of profit taking," said Bipan Rai, director of foreign exchange strategy at CIBC World Markets.
"We still see the market as being heavily biased to buying US dollar against the Canadian dollar on dips lower for USD/CAD."
At 9:58 a.m. (1458 GMT), the Canadian dollar was at C$1.1626 to the greenback, or 86.01 US cents, stronger than Monday's close of C$1.1656, or 85.79 US cents. Earlier, it was trading at levels not seen since July 10, 2009.
Rai said the loonie was somewhat oversold in the short term and that a brief consolidation phase was typical following sharp moves in the currency. He added that the near-term target of C$1.1685 was at risk of being breached on Tuesday or Wednesday.
"And we see further weakness beyond here into the first half of next year, which could see USD/CAD trading close to the C$1.20 mark," said Rai.
In Canada, data showed that factory sales fell by a more-than-expected 0.6 percent in October from September. Foreign investment in Canadian securities strengthened to C$9.53 billion from C$4.64 billion between October and September, a sign that the country remains an attractive destination for non-residents seeking stable returns.
Canadian government bond prices were higher across the maturity curve, with the two-year up 5.5 Canadian cents to yield 0.949 percent and the benchmark 10-year rising 33 Canadian cents to yield 1.748 percent.
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