TORONTO: The Canadian dollar recovered from a fresh 12-year low against its US counterpart on Thursday after a speech by Bank of Canada Governor Stephen Poloz left doubt about a rate cut and oil prices rebounded from nearly 12-year lows.
The latest tumble in crude oil prices and the loss of momentum in the Canadian economy has led to speculation that Canada's central bank will cut interest rates. But some analysts said Poloz's speech and subsequent press conference did not seem to hint at a cut.
"There's no smoking gun," said Andrew Kelvin, senior rates strategist at TD Securities.
Weakness in the Canadian dollar is the most important factor in helping Canada adjust to low commodity prices, Poloz said in a speech on economic and financial divergence, pledging to steer monetary policy independently of the US Federal Reserve.
His comments implied that a weaker Canadian dollar facilitates a transition to a world of lower oil or commodity prices, according to Paul Ferley, assistant chief economist at Royal Bank of Canada.
At 11:27 a.m. EST (1627 GMT), the Canadian dollar was trading at C$1.4071 to the greenback, or 71.07 US cents, slightly stronger than the Bank of Canada's official close on Wednesday of C$1.4080, or 71.02 US cents.
The currency's strongest level of the session was C$1.4051, while it hit its weakest level since July 2003 at C$1.4170.
"Markets were maybe looking for a bit stronger a signal of rate cuts, but by no means are they off the table," said Kelvin.
The pace of purchasing activity in Canada decreased in December as a slowdown in inventories outweighed a pickup in employment, according to Ivey Purchasing Managers Index data.
Oil prices steadied after falling earlier to nearly 12-year lows as short-covering helped crude futures rebound from sentiment dented by a tumbling Chinese stock market.
US crude prices were unchanged at $33.97 a barrel, while Brent crude added 0.44 percent to $34.38.
Canadian government bond prices were lower across the maturity curve, with the two-year price down 5.5 Canadian cents to yield 0.438 percent and the benchmark 10-year falling 18 Canadian cents to yield 1.348 percent.
The Canada-US two-year bond spread was 2.3 basis points narrower at -54.6 basis points as Canadian government bonds underperformed on reduced expectation of a Bank of Canada rate cut.
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