OTTAWA: The Canadian dollar firmed modestly against the greenback on Wednesday as market participants booked profits in the US currency ahead of the Christmas holidays.
The loonie was expected to stick to a tight range with volume dwindling as the session progresses. Canadian and US bond and equity markets will be open for only half the day. Canadian markets will be closed on Thursday and Friday for the Christmas and Boxing Day holidays.
A slight decline for the US dollar against a basket of currencies helped the Canadian dollar, which has tumbled in recent months in the face of plunging oil prices and broad investor favor for the greenback.
"It's a little bit of profit-taking, maybe a little bit of positioning-squaring heading into holidays, and not really a thematic play," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto.
The Canadian dollar was at C$1.1610 to the greenback, or 86.13 US cents, slightly stronger than Tuesday's close of C$1.1630, or 85.98 US cents.
Still, the morning's gains were minuscule compared with the rout of the Canadian dollar over the past six months as the currency has fallen with the price of oil, a major Canadian export. It has shed 8.5 percent for 2014, putting it on track for its worst year since 2008.
Analysts expect the Canadian dollar will weaken further as 2015 gets underway. With the US Federal Reserve likely to raise interest rates next year, investor appetite for the US dollar is set to be renewed to the detriment of the loonie.
"While we're in the period of very strong US dollar flows, I think it's still a story of a weak Canadian dollar," Sutton said.
"I think the story does settle in the second half of the year when we see how the impact of a strong US economy and the weakness we've already seen in the Canadian dollar help to offset oil prices."
Canadian government bond prices were lower across the maturity curve, with the two-year down 3 Canadian cents to yield 1.070 percent and the benchmark 10-year down 18 Canadian cents to yield 1.925 percent.
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