The Canadian dollar drops to its lowest level in two months against the dollar as oil prices collapsed and the U.S. dollar rose with strong jobs data.
According to Mazen Issa, a senior foreign exchange strategist at TD Securities in New York, the Canadian currency, colloquially known as the loonie, could weaken further in the coming days as investors reassess recent bullish positions that had ignored widening rate differentials between the bond yields of the two countries as the U.S. Federal Reserve winds up to hike and the Bank of Canada doubles down on a studiously neutral stance.
The Canadian dollar settled at C$1.3494 to the greenback, or 74.11 U.S. cents, much weaker than Tuesday's close of C$1.3416, or 74.55 U.S. cents. It has jumped 4 Canadian cents since late February.
"We're nearing a very significant inflection point, and I think that there's a risk that we actually test that by this Friday and into the Fed," Issa said.
That inflection point Issa referenced sits at C$1.3600, a level approached but not broken twice since November. Breaching it would push the currency to its weakest against the greenback in more than a year.
Oil prices plunged 5 percent as U.S. crude inventories surged much more than expected, stoking concerns a global glut could persist despite OPEC's output curbs.
Canada will release its next federal budget on March 22, setting the stage for a fresh estimate of how big the deficit will get as the Liberal government spends on infrastructure to boost the economy.