C$ starts 2015 at 5-1/2-year low

OTTAWA: The Canadian dollar fell to its lowest level against the greenback in 5-1/2 years on Friday, kicking 2015 off on a weak note as it was hit by a rally in the US dollar and another drop in oil prices.

Traders returned to their desks to take the loonie resoundingly lower, after it drifted higher in light holiday volume over the last few sessions. Investors bet that many of the themes that battered the currency in 2014 were still intact, including a Federal Reserve that is expected to raise interest rates this year.

"The Canadian dollar benefited from people having that Christmas holiday effect and not really worrying about what will happen in the new year," said Don Mikolich, executive director of foreign exchange sales at CIBC World Markets in Toronto.

"Overall, people will get refocused as they get into January now, it'll be about looking at the Fed meetings and what oil prices are doing and the (economic) data."

Anticipation that the European Central Bank will take more aggressive steps on monetary policy later this month added to the favor for the US dollar and highlighted the divergence between monetary policy at the Fed and much of the rest of the world.

ECB President Mario Draghi said the risk of the central bank not fulfilling its mandate of preserving price stability was higher now than half a year ago, suggesting it was ready to act early this year.

The Canadian dollar was at C$1.1700 to the greenback, or 85.47 US cents, weaker than Wednesday's official close from the Bank of Canada of C$1.1601, or 86.20 US cents. Markets were closed on Thursday for the New Years holiday.

The loonie was sitting near its session lows, putting it at its lowest level since July 2009.

A decline in the price of oil also continued to weigh on the loonie, with crude down 25 cents at $53.02 a barrel. Whether oil will see another significant plunge is a major risk for forecasts for the loonie this year, as oil is a major export for Canada.

Canadian government bond prices were mixed across the maturity curve, with the two-year down half a Canadian cents to yield 1.013 percent, while the benchmark 10-year was up 4 Canadian cents to yield 1.786 percent.