December 14, 2015 / 1:01 PM / 2 years ago

FOREX-Oil price slide drives Canadian dollar to 11-1/2-year low

3 Min Read

* Oil currencies fall as brent falls below $37

* Safe havens boosted on subdued risk appetite

* Fed policy meeting eyed

* Yuan weakens further after China launches trade-weighted index

By Jemima Kelly

LONDON, Dec 14 (Reuters) - Oil-rich Canada's dollar hit an 11-1/2-year trough against its U.S. counterpart on Monday as oil prices slid to seven-year lows, while the Swiss franc and yen were boosted as investors sought out safe havens.

As brent crude fell below $37 a barrel on growing fears that a global oil glut will worsen in the coming months, the Norwegian crown also fell around half a percent, reversing all its earlier gains. Norway relies on oil and gas for more than one fifth of its gross domestic product.

With stock prices falling as investors sold their riskier assets, the Swiss franc, traditionally bought at times of risk aversion, rose 0.3 percent to 1.0771 francs per euro, its strongest since Nov. 12. The yen rose 0.2 percent, trading at 120.74 yen against the dollar.

"Now that we are seeing a breakthrough of Friday's lows in the oil price and we're seeing a sharp acceleration of the fall, the market is getting nervous," said Commerzbank currency strategist Esther Reichelt, in Frankfurt.

The Canadian dollar fell 0.2 percent to C$1.3780, its weakest since April 2004.

The fall in risk appetite also helped the euro, as investors who had held euro-funded carry positions, in which they borrow the euro in order to sell it and buy a higher-yielding, riskier currency, bought back the single currency. It traded flat on the day at $1.09785.

The euro had earlier weakened to $1.0945 as investors braced for the first U.S. interest rate rise in almost a decade. The Federal Reserve's two-day policy meeting will conclude on Wednesday, with the key question being how quickly the Fed will try to normalise policy going forward.

RBC Capital Markets currency strategist Adam Cole, in London, said that investors were underestimating the pace of further interest rate rises. Markets are pricing in two hikes in 2016, whereas Cole expects four.

"I'd rather be long the dollar than short this week," he said. "We think that a rate hike is pretty much a foregone conclusion but the commentary that goes with it is likely to be slightly less dovish than some are expecting."

"This notion of a dovish hike is a little bit misguided, we think, and relative to those expectations (the Fed meeting) is likely to be dollar positive," he added.

Earlier, China's yuan hit a 4-1/2-year low in onshore trading after the country's central bank again lowered the yuan midpoint rate. That followed Friday's announcement of a new trade-weighted index, which some viewed as a green light for further devaluation of the currency.

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