The Canadian dollar dropped today to its lowest level compared with the U.S. dollar since June 2004, as a fresh low for oil pushed the loonie deeper.

The dollar closed down 0.84 cents on Monday at 74 cents US, having slipped below that mark during the trading day. That's the first time the loonie has been below 74 cents US since June 2004.

The reason for the weakness was a new round of bad news for oil, which tends to drag Canada's currency up or down in a closer correlation than any other single factor.

Oil lost another $2.34 US on Monday, with a barrel of WTI crude closing at $37.63, setting a new low for the year and hitting its lowest level since 2009. Prior to Monday, oil's lowest close this year came on Aug. 24 at $38.24 a barrel.

In February 2009, during the depths of a global recession, the price of a barrel of oil bottomed out at $33.98 a barrel.

Finance Minister Bill Morneau said the low oil price is making things difficult not just for the loonie, but for the economy in general.

"As we face up to an oil price that is lower than we might have expected, we recognize that our economy's going to be challenged," he said at an afternoon news conference to announce the implementation of the Liberals' tax agenda

OPEC abandons production cap

Oil went south after OPEC said this weekend it would abandon the soft cap of 30 million barrels a day that the oil cartel has more or less stuck to since 2012. The group is currently pumping out about 31.5 million barrels a day, and OPEC president Emmanuel Ibe Kachikwu told reporters over the weekend that the group would set aside any talk of a production cap until at least its next group meeting, currently scheduled for June.

OPEC has more or less successfully managed the oil market for decades by capping the amount that it allows to enter the market. Although its influence has been diminished by concerted efforts in non-OPEC countries such as the U.S. and Canada to pump out more oil, OPEC still controls about a third of the market.

It's believed that the cartel was willing to see oil prices crater in an attempt to drive U.S. shale producers out of business, because the latter have much higher production costs and can't stay profitable for long in a cheap oil environment.

U.S. oil derrick

The price of a barrel of North America's oil benchmark, known as WTI, lost another $2.38 US on Monday, dragging the value of the loonie down to its lowest level in 11 years in the process. (Shannon Stapleton/Reuters)

But the U.S. shale industry has proved far more resilient than first thought, as American oil companies so far haven't balked or moved to cut their own production significantly.

OPEC's announcement on Monday suggests the oil market is in a race to the bottom that looks set to continue.

"No one in the energy patch is willing to support the price [of oil] and if they aren't willing, the price will keep dropping," Mizuho Securities chief economist Steven Ricchiuto said. "The whole world is facing excess supply as the global economy slows."

For now, OPEC seems comfortable to ride out the standoff, with a high-ranking official within the group saying the cartel sees no need to handcuff itself if other oil players don't do the same.

The non-OPEC oil market "doesn't have any ceiling," Adel Abdul Mahdi, Iraq's oil minister, told reporters in Vienna on Friday. "Americans don't have any ceiling. Russians don't have any ceiling. Why should OPEC have a ceiling?"

The fall of oil prices was also bad news for Canada's main stock index, as the S&P/TSX composite index shed 316 points to close at 13,043.

"We are obviously paying very close attention to the price of oil. It has an important impact on the Canadian economy," Morneau said in his remarks.