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TORONTO (Reuters) - The Canadian dollar weakened to a fresh 11-year low against the greenback on Tuesday, as a slump in crude oil prices to 2009 levels raised the prospect Canada's central bank might have to take further accommodative measures.
U.S. crude prices fell below $37 per barrel for the first time since early 2009 on fears global oil producers will pump even more crude in a battle for share in a saturated market.
"Oil spending time below $40 is shaking the foundations of the market," said Darcy Browne, managing director of foreign exchange sales at CIBC Capital Markets. "Whether it be people concerned for job cuts, are we going to start talking about rate cuts here, some form of QE (qualitative easing)."
The Bank of Canada cut rates twice this year to offset the oil price shock, and on Tuesday said it could push them into negative territory if warranted, but stressed it did not expect to use such unconventional monetary policy.
Meanwhile, the U.S. Federal Reserve is widely expected to hike rates for the first time in almost a decade later this month.
The Canadian dollar CAD=D4 settled at C$1.3587 to the greenback, or 73.60 U.S. cents, weaker than the Bank of Canada's official close of C$1.3513, or 74.00 U.S. cents.
In the two weeks to last Friday, the loonie had traded between C$1.3280 and C$1.3436.
The currency's strongest level of the session was C$1.3496, while it hit its weakest level since mid-2004 at C$1.3623.
In a report sent to clients on Tuesday afternoon, CIBC altered its outlook for the loonie, with an expected average of C$1.42 in the first quarter of 2016, from C$1.36 previously.
"There's nothing on the horizon that looks very rosy at the moment, so I don't see why the trend is going to reverse," Browne said.
Firm Canadian housing data did little to offset pressure on the Canadian dollar, while sluggish Chinese trade data fed concern about slower global growth.
Canadian government bond prices were mostly higher across the maturity curve, with the two-year CA2YT=RR price up 6.5 Canadian cents to yield 0.566 percent and the benchmark 10-year CA10YT=RR rising 11 Canadian cents to yield 1.508 percent. The 30-year issue slipped 2 Canadian cents to yield 2.239 percent.
The Canada-U.S. two-year bond spread was 3.5 basis points wider at -36.9 basis points, trading at its deepest negative spread since June 2007 as Canada's 2-year bond outperformed.
Additional reporting by Fergal Smith; editing by Meredith Mazzilli, Diane Craft