C$ falls below 70 US cents for first time since May 2003

TORONTO: The Canadian dollar on Tuesday weakened below 70 US cents for the first time since May 2003 as a slump in oil prices extended to near $30 a barrel and traders increased their bets that the Bank of Canada will cut interest rates this month.

The last time the Canadian dollar traded below that psychological threshold, US crude oil prices were also trading below $30 a barrel, near the start of a bull run that would hit a record high above $147 a barrel by July 2008.

This time around there is little hope oil prices will rebound anytime soon, with global production vastly outpacing demand and concern growing about weakening in No. 2 consumer China's economy.

Crude prices have fallen almost 17 percent so far this year, after shedding 35 percent in 2015.

The Canadian dollar fell 16 percent last year and has shed another 3 percent in the first days of 2016.

"We went up there (in US dollar terms) very quickly," said David Bradley, director of foreign exchange trading at Scotiabank, "basically because of the meltdown in oil."

It was last trading at C$1.4272 to the greenback, or 70.07 US cents, weaker than the Bank of Canada's official close from Monday of C$1.4223, or 70.31 US cents.

At one point it hit C$1.4316, or 69.85 US cents

The sustained weakness in the price of oil, a major Canadian export, increases pressure on Canada's central bank to act.

"People are calling for the Bank of Canada to cut rates at the next meeting," said Scotiabank's Bradley.

The central bank's next interest rate announcement is on Jan. 20. The market has implied an almost one-in-three perceived chance of a cut, up from roughly one in five a week ago, and has fully discounted one by May.

Speculation that the Bank of Canada will take further action after cutting rates twice in 2015 is also adding pressure on the currency, especially as the Federal Reserve has starting to raise US rates.

A Jan. 7 speech by Governor Stephen Poloz left investors doubtful he would cut Canada's benchmark rate this month.

But the Bank of Canada's quarterly Business Outlook Survey has since revealed deterioration in sentiment.