The Canadian dollar fell to a nearly four-month low against its broadly stronger U.S. counterpart on Wednesday, as investors raised bets on a Bank of Canada interest rate cut this year after the central bank slashed its economic growth outlook.
Canada’s central bank held its benchmark interest rate steady at 1.75 per cent as expected but removed wording about the need for future rate hikes and lowered its growth forecast for 2019 to 1.2 per cent from 1.7 per cent.
“It is pretty clear that the Bank of Canada softened its stance again,” said Marc Chandler, chief market strategist at Bannockburn Global Forex LLC.
The Bank of Canada has raised rates by 125 basis points since July 2017. But the Canadian economy has taken a hit from the province of Alberta’s mandatory production cut of oil – the country’s biggest export – a slowdown in the housing market and wilting business sentiment over worries surrounding the U.S.-China trade war.
Chances of an interest rate cut by December rose to 65 per cent from 57 per cent before the policy announcement, data from the overnight index swaps market showed.
At 4:03 p.m., the Canadian dollar was trading 0.5 per cent lower at 1.3484 to the greenback, or 74.16 U.S. cents. The currency touched its weakest intraday level since Jan. 3 at 1.3522.
The decline for the loonie came as disappointing German data helped push the U.S. dollar to a nearly two-year high against a basket of major currencies.
“It (the Canadian dollar) was already pushing an open door today. The market was clearly leaning toward the sell side and I think that it took this as simply an excuse to press,” Chandler said.
The price of oil pulled back from a six-month high as data showing rising U.S. stocks countered fears of tight supply resulting from OPEC output cuts and U.S. sanctions on Venezuela and Iran.
U.S. crude oil futures settled 0.6 per cent lower at $65.89 a barrel.
Canadian government bond prices were higher across the yield curve, with the two-year up 11.5 cents to yield 1.511 per cent and the 10-year rising 72 cents to yield 1.674 per cent.
The 10-year yield fell 2.8 basis points further below the yield on the equivalent U.S. bond to a spread of -84.8 basis points, its widest since March 25.