TORONTO (Reuters) - The Canadian dollar on Monday ended 2018 with its worst annual performance in three years, hitting a 19-month low against its U.S. counterpart earlier in the day before reversing its decline as oil prices and stocks rallied.
At 3:37 p.m. (2037 GMT), the Canadian dollar CAD=D4 was trading nearly unchanged at 1.3635 to the greenback, or 73.34 U.S. cents.
The currency, which has been pressured in recent months by a sharp drop in the price of oil, one of Canada’s major exports, and volatility in equity markets, hit its weakest intraday level since May 2017 at 1.3665.
“It has been a pretty terrible year for the Canadian dollar,” said Rahim Madhavji, president at Knightsbridge Foreign Exchange. “The combination of a flight to safety plus weak oil is a recipe for disaster for the Canadian dollar.”
For the year, the loonie was down 7.7 percent, its first decline since 2015.
Stocks were boosted on Monday by signs of progress in the U.S.-China trade dispute, while U.S. crude oil futures CLc1 settled 0.2 percent higher. Still, oil has fallen about 40 percent since October.
“The fact that oil prices are down quite a bit is something that is going to worry the Bank of Canada,” Madhavji said.
The central bank has raised interest rates five times since July 2017 to leave its benchmark interest rate at 1.75 percent. But money markets do not expect any further increases in 2019. BOCWATCH
The U.S. dollar .DXY fell against a basket of major currencies in thin year-end trading as increased risk appetite weighed on demand for safe-haven currencies.
Canadian government bond prices were mixed across a steeper yield curve, with the two-year CA2YT=RR flat to yield 1.862 percent and the 10-year CA10YT=RR falling 8 Canadian cents to yield 1.965 percent.
In earlier trading, the two-year yield fell to its lowest since June 29 at 1.846 percent.
Canadian financial markets will be closed on Tuesday for the New Year’s Day holiday. The country’s employment report for December is due on Friday.
Reporting by Fergal Smith; Editing by Steve Orlofsky and Peter Cooney