The Canadian dollar lost close to a cent against the U.S. dollar on Tuesday, after a Bank of Canada official pointed out weaknesses in the Canadian economy and the labour market.

Senior deputy governor Carolyn Wilkins said the Bank of Canada cut its benchmark rate by 25 basis points in January to help navigate the economic uncertainty tied to low oil prices.

The central bank has tools it can use to handle the oil slump and is prepared to take action, she said.

Many investors interpreted those remarks as a sign the central bank will again cut interest rates again next month.

"While it can be argued whether the size of the output and labour gaps (both unobserved concepts) justified an interest rate cut in January or not, what is clear is that the oil price the Bank of Canada based its analysis on ($55 US per barrel for WTI) was higher than that prevailing and most near-term expectations," TD Bank senior economist Randall Bartlett said in a note to investors.

"As such, we expect that the Bank of Canada will take out additional insurance and reduce the overnight rate by a further 25 basis points at its upcoming interest rate announcement in March 2015," he continued.

The Canadian dollar fell 0.66 of a cent to 79.53 US on Tuesday, after trading as low as 79.25 US cents.

The loonie also was responding to a drop in the price of oil, which had moved upwards in recent days.

West Texas Intermediate crude fell $2.38 to $50.48 US a barrel in trading in New York. Brent crude was down $1.44 to $56.90 a barrel.

The TSX rose 12 points to 15112, held back by resource stocks.

Copper and gold prices also fell.

In her speech titled Minding the Labour Gap, Wilkins said the central bank is monitoring labour market indicators such as high youth unemployment, the number of people taking part-time jobs because there is nothing else and the long periods people are spending out of work.

The average duration of unemployment is close to its post-financial-crisis peak of around 21 weeks, Wilkins added.

"That is a long time to be unemployed," she said.

She said the Canadian economy is not living up to its potential. "There is no doubt that the Canadian economy has room to grow," Wilkins said.

Still, Wilkins expressed confidence that with a stronger U.S. economy, a lower Canadian dollar and an accommodative monetary policy, the Canadian recovery was on track.