The Canadian dollar closed at its lowest level in nearly three weeks on Wednesday, as falling oil prices dragged the currency past key technical levels, accelerating its decline from the 14-year peaks hit just last week.
Bond prices rose, supported by a steep oil-driven tumble in Canadian stock prices.
The currency finished at C$1.1822 to the US dollar, or 84.59 US cents, down from C$1.1720 to the US dollar, or 85.32 US cents, at Tuesday's close.
Crude oil prices extended their losses of previous sessions, dropping below $63 and eroding a key driver of the Canadian dollar's recent strength. The pull-back sent the currency past technical levels, speeding its losses against both the US dollar and other major currencies.
"I think it was more than what was going on with oil. You saw a big sell-off on the crosses," said Jeremy Friesen, senior currency strategist at RBC Capital Markets.
"The US dollar hit some extreme levels, probably related to oil but also related to where the implied rates have gone in the US Federal Reserve. They've fully priced in a November hike and almost priced in a December one."
Hawkish comments from the US central bank have convinced the market that damage from hurricane Katrina will not likely prompt the Fed to slow the pace of US rate hikes.
The Bank of Canada is also expected to raise interest rates but, with the Canadian dollar having hit a 14-year high just last week, there was added pressure to take profits in the currency, analysts said.
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