Canadian dollar slides as oil weakens

The Canadian dollar slid on Monday, as retreating commodity prices allowed the US dollar to make up ground against major currencies. Bond prices were mixed, but weaker on the long end as lower oil prices eased fears that high energy prices would hamper US economic growth. The currency finished at C$1.2005 to the US dollar or 83.30 US cents, down from C$1.1927, or 83.84 US cents, at Friday's close.
With oil prices falling to near $45 a barrel and gold slipping from 16-year highs, the US dollar was able to push higher against major currencies, particularly the euro.
"With the euro/dollar unable to break above C$1.30 level and actually trading down towards 1.2920, I think that was the trigger point for a little bit of short-covering in dollar/Canada," said George Davis, chief technical strategist at RBC Capital Markets.
The Canadian currency went as high as C$1.1946, or 83.71 US cents in the morning, but then began its retreat after Statistics Canada said September factory shipments slid 0.6 percent from August, hurt by a higher Canadian dollar and firmer energy prices. The market had expected a gain of 0.1 percent.
But analysts said the currency's big move was largely in response to the rebounding greenback.
The steady decline of the US currency, based on concerns over large US deficits, has helped the Canadian dollar rise nearly 9 percent since mid-September. Last week it popped to a 12-year high of just over 84 US cents.
Part of the Canadian dollar's rise has also been attributed to oil prices that surged as high as $55 per barrel recently, although it has taken a while for oil's recent decline to affect the currency.
"The market seemed to pay attention to it going up, but it hasn't been as much of a factor on the way down as you would think," said Davis.
Canadian bonds weakened on the long end, as lower oil prices calmed fears over the effect of high energy prices on US economic growth.
Short-dated bonds were little changed, however, helped by the weak manufacturing data, as the market waited to hear whether the Bank of Canada would give any hints that the recent rise by the Canadian dollar could jeopardise expected interest rate hikes.
The market still expects the central bank to implement its third-straight interest rate hike when it announces its rate policy in December.