C$ drops to six-year low on big data miss, cheap oil

TORONTO: The Canadian dollar touched its weakest level against the US dollar in more than six years on Wednesday as data showed Canadian wholesale sales tumbled in January, while crude prices extended their dive as US oil in storage hit a record high.

The currency had been sidelined for much of this week ahead of a policy statement from US Federal Reserve due later in the session, mainly staying just below the key psychological level of C$1.28 to the greenback before Wednesday's action. Market participants will parse through the Fed's language for hints on whether it will hike interest rates as early as this summer, or continue to wait.

"What you've seen in the last little bit is a little bit of froth in the US dollar market in general," said Brad Schruder, director of foreign exchange sales at BMO Capital Markets.

Schruder said the US dollar's strength has been driven by economic underpinnings rather than rate hike expectations, noting that the rates market has not responded as though a hike is imminent.

"That doesn't mean the greenback isn't going to continue to strengthen because it will, but I wouldn't be surprised today if you saw a little 'buy the rumor, sell the fact'."

At 9:04 a.m. (1304 GMT), the loonie was at C$1.2824 to the greenback, or 77.98 US cents, weaker than Tuesday's close of C$1.2785, or 78.22 US cents.

The value of wholesale sales in Canada had its biggest drop in six years in January, falling 3.1 percent to C$53.7 billion, far exceeding economists' expectations of a 0.8 percent fall.

The disappointing data helped push the Canadian dollar to C$1.2835, or 77.91 US cents, at one point, its weakest level since March 13, 2009.

Also pressuring the currency was the price of crude, a key Canadian export. Brent crude fell below $53 a barrel, while US prices were just above $42 as industry data showed US crude stocks hit a record high.

"I think there's a lot of participants who really believe we're on the cusp of another shoe dropping for energy. That alone could push USD/CAD higher," Schruder said.

Canadian government bond prices were mostly higher across the maturity curve, with the two-year up 3 Canadian cents to yield 0.523 percent and the benchmark 10-year climbing 35 Canadian cents to yield 1.376 percent.