The Canadian dollar CADUSD weakened against its U.S. counterpart on Tuesday as the price of oil, one of Canada’s major exports, tumbled more than 4% and the greenback reversed some recent declines against a basket of major currencies.
The loonie was trading 0.7% lower at 1.3665 to the U.S. dollar, or 73.18 U.S. cents, after touching its weakest since Dec. 20 at 1.3685.
“After sliding into the end of the year, the U.S. dollar has righted itself on the first business day of the year,” said Michael Goshko, senior market analyst at Convera Canada ULC.
The U.S. currency jumped before the Federal Reserve on Wednesday is to release minutes from its December meeting, while oil was pressured by weak demand data from China and a gloomy economic outlook as well as the stronger greenback.
U.S. crude oil futures settled 4.1% lower at $76.93 a barrel.
“The Canadian dollar certainly hasn’t been helped by any strength in commodities or energy recently but it always gets smacked when oil is weak,” Goshko said.
The loonie lost 6.8% in 2022, with much of the decline occurring in the last few months of the year.
Speculators have raised their bearish bets on the currency to the highest level since August 2020, data from the U.S. Commodity Futures Trading Commission showed last Friday.
As of Dec. 27, net short positions had increased to 30,033 contracts from 26,961 in the prior week.
Domestic economic data was also a headwind, showing that manufacturing activity contracted at a slightly faster rate in December.
Canadian government bond yields were lower across a flatter curve. The 10-year yield fell 6.1 basis points to 3.230%, pulling back from its highest intraday level in more than seven weeks last Friday at 3.357%.