TORONTO - The Canadian dollar was higher Tuesday morning at the end of a year in which the loonie dropped below parity with the U.S. dollar, with little expectation it will regain that level anytime soon.

The loonie rose 0.07 of a cent to 94.05 cents US.

The currency started the year at 100.51 cents US but has since fallen 6.7 per cent.

Part of the reason for the slide was rising speculation starting in late May that the U.S. Federal Reserve would start to taper its US$85 billion of bond purchases, a key element of stimulus that had kept long term rates low and supported a strong equity market rally. Talk of Fed easing pushed the greenback higher, while the central bank decided late in the year to start cutting purchases by $10 billion a month starting in January.

Declining commodity prices also helped depress the loonie.

But the biggest pressure point for the dollar was made in Canada.

"Most importantly, the view on the Bank of Canada changed, as we came into this year expecting the BoC to hike rates at some point," observed said David Watt, chief economist at HSBC Bank of Canada.

"Instead, the Bank of Canada stepped back from its tightening bias and removed its tightening bias and now the discussion is actually whether the Bank of Canada might cut rates."

Watt added that he expects the Canadian dollar will continue to move lower during 2014.

"We were expecting the Canadian dollar to linger around 90 cents actually from the middle of next year into 2015 so we’re expecting the Canadian dollar to remain quite a bit below parity," he said.

Watt said another issue for the dollar is that the Canadian economy is "consistently underperforming."

"Even though you may get the odd quarter that looks pretty good, the underlying story for the Canadian economy is still one where we have to essentially go through a difficult transition as we move away from consumers toward exports and business investment," he said.

"We are not seeing those trends unfold smoothly at the present time, especially on the exports side."

The Canadian dollar also weakened during the year against the euro and the British pound while rising against the Australian dollar and the Japanese yen.

Meanwhile, later Monday traders will take in readings on U.S. home prices, consumer confidence and a key manufacturing index for the American Midwest.

Commodity prices Monday were generally lower as the February crude contract on the New York Mercantile Exchange declined 68 cents to US$98.61 a barrel.

Gold prices lost ground with the February contract on the Nymex down $7.50 to US$1,196.30 an ounce. March copper was unchanged at US$3.38 a pound.

News from © The Canadian Press, 2013