The Canadian dollar finished lower against the greenback for the first time in 10 trading sessions Tuesday, pulled down by retreating oil prices, but it still ended the day above par against the U.S. currency.
Canada is a major oil producer, and despite a slide of 2 per cent in crude prices to below $90 (U.S.) a barrel, many investors expect the Canadian dollar to trade near par with the U.S. dollar for some time due to optimism about the world economy.
"If we continue to see some decent Canadian economic releases and no pain out of Europe, then the Canadian dollar will appreciate as long as we continue to see stronger oil and commodity prices," said John Curran, senior vice-president at CanadianForex, noting the U.S. dollar had perked up.
"Markets are getting back to some sort of normalcy. A few of the other currencies have pulled back...so it makes sense for the Canadian dollar to give up some of the ground it gained."
The currency finished above parity for a second session at $0.9985 Canadian to the U.S. dollar, or $1.0015, but down from Friday's finish, when it ended the year at $0.9946 to the U.S. dollar, or $1.0054.
During the Canadian dollar's trek above parity in the final trading sessions of 2010, investors cautioned that thin conditions exacerbated the move. A Reuters foreign exchange poll last month showed analysts expected the Canadian dollar would hover around parity for a good portion of 2011.
"It's fascinating to me that most of those fairly significant moves we saw last year ... basically have been maintained in early 2011. I think there's a little bit more meat on the bones than people give ... credit for," said Doug Porter, deputy chief economist at BMO Capital Markets.
The Canadian dollar shot as high as $0.9889 to the U.S. dollar, or $1.0112, on Monday, when Canadian financial markets were closed. This represents a new technical support level for the U.S. currency against the Canadian dollar, said Adam Cole, head of global FX strategy at RBC Capital Markets in London.
Early Tuesday, the Canadian currency touched as high as $0.9917 to the U.S. dollar, or $1.0084, its highest level since May, 2008. It fell as low as $1.0035 to the U.S. dollar, or 99.65 U.S. cents, its lowest level since Dec. 29, due to the falling price of oil and the boost given to the greenback by strong U.S. factory orders figures for November.
Canadian bond prices extended losses into the end of the session, dropping hard on the day's economic data, which suggested a brighter economic outlook.
The factory orders data showed the largest gain in eight months, while some analysts said the U.S. Federal Reserve's take on the economy improved again though the central bank still had a "fairly high" bar for stopping its bond repurchases.
North American employment data on Friday will provide the main focus this week, with improvements expected on both sides of the border. U.S. Federal Reserve Chairman Ben Bernanke's congressional testimony that day will also be closely watched.
"The market remains under a bit of pressure because U.S. economic reports continue to generally come in better than expected. I think there's a sense that Friday's employment report will be a big improvement over November's weak affair in Canada and the U.S.," Mr. Porter said.
The two-year bond was down 5 cents (Canadian) to yield 1.696 per cent, while the 10-year bond dropped 50 cents to yield 3.178 per cent. Canadian government bonds put in a mixed performance against the U.S. counterparts.Report Typo/Error