3 Min Read
* Canadian dollar at C$1.1164 or 89.57 U.S. cents * Bond prices higher across the maturity curve By Leah Schnurr TORONTO, Jan 28 (Reuters) - The Canadian dollar touched a 4-1/2-year low on Tuesday as stabilization in emerging markets allowed investors to resume selling the loonie as the focus returned to bearish domestic factors. A policy shift from the Bank of Canada late last year has weighed on the loonie in recent months and has fueled market expectations that interest rates will stay low for some time. Selling intensified last week after the central bank left the door open to a rate cut. Recent comments from the central bank that the Canadian dollar was still strong and that its strength still posed an obstacle to exports have added pressure to the currency. The Canadian dollar got a respite late last week from selling after a sell-off in emerging markets gave the loonie some safe haven appeal. But as those markets steadied on Wednesday, the Canadian dollar was out of favor again. "The overall Canadian dollar story is still very much favoring the bearish side," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto. "All in all, what we're seeing is a retracement of the risk aversion move, so as we've had the prospects for the emerging markets stabilize a little bit, what it also does is it then in turn allows the Canadian dollar to go back to where it was." An unexpected drop in durable goods south of the border also weighed on the Canadian dollar, said Sutton. Analysts are looking for a pick up in the U.S. economic recovery this year to eventually lend some strength to Canada's economy. The Canadian dollar was at C$1.1164 to the greenback, or 89.57 U.S. cents, weaker than Monday's close of C$1.1112, or 89.99 U.S. cents. The loonie touched a session low of C$1.1177, its lowest level since July 2009. With the Canadian economic calendar light this week, focus was turning toward the U.S. Federal Reserve's two-day policy-setting meeting that will get underway on Tuesday. Markets expect the Fed is likely to trim another $10 billion a month from its bond-buying program, which will leave its monthly purchases at $65 billion a month. The only piece of domestic data this week will be monthly Canadian gross domestic product due on Friday. Canadian government bond prices were higher across the maturity curve, with the two-year up 0.7 Canadian cent to yield 0.979 percent and the benchmark 10-year up 8 Canadian cents to yield 2.417 percent.