TORONTO: Canada's dollar hit its weakest level in six months on Friday and longer-term bond yields tumbled to record lows as investors fled riskier trades after weak North American economic data added to worries about stumbling global growth.
Canada's dollar touched a low of C$1.0443 against the greenback, or 95.76 US cents, its lowest level since late November after a disappointing US jobs report.
The data, which showed jobs growth in May at its weakest in a year, raised worries that the US economy is not immune to weakness in Europe, where Spain is struggling to support its banks, or to slower growth in China.
The commodity-linked currency was also hurt by data that showed the Canadian economy grew less in the first quarter than the Bank of Canada had expected.
Following Friday's data, traders raised bets of a Bank of Canada interest rate cut by the end of the year.
"The Bank of Canada (rate hike) has been completely priced out for this year. In fact, cuts are priced in now," said Blake Jespersen, managing director, foreign exchange sales at BMO Capital Markets.
"The Canadian dollar and likely the Canadian economy are going to be sideswiped by the massive problems going on in Europe right now," he added.
The Canadian dollar, which underperformed most of its G10 currency peers, ended at C$1.0394 versus the greenback, or 96.21 US cents, down from Thursday's North American session close at $1.0329 against its US counterpart, or 96.81 US cents. The currency was down around 1 percent for the week.
Speculation of a hike in interest rates had heated up after the central bank used unexpectedly hawkish language in its April 17 policy statement, but the flare-up of the European debt crisis and some tepid US data have since cast doubt on any plans to tighten monetary policy.
"The bottom line here is that there's no way the Bank of Canada is moving this year, in my opinion," said Derek Holt, vice president of economics at Scotiabank. "Not just on geopolitical risks but also on growth disappointments on the domestic side of the picture, which adds a new twist to the policy risks in Canada."
All eyes will be on Tuesday's rate announcement and accompanying policy statement.
"Certainly if you look at Canada as an isolated story, it does warrant increasing rates. But given the global backdrop here, (it's) going to be forced to stay on hold for quite some time in my view," said BMO's Jespersen.
The Bank of Canada may signal on Tuesday that it is more reluctant to raise interest rates than it was seven weeks ago, without completely reversing its message that Canadians should start preparing for higher borrowing costs down the road.
The North American data provided a fresh blow to investors already worried about the global growth outlook.
European stock indexes fell sharply on Friday, US stocks tumbled more than 2 percent, while oil prices slid below $85 a barrel.
Canadian government bond prices climbed across the curve, sending longer-dated yields to record lows for another day. Canada's benchmark 10-year bond yield hit a record trough of 1.615 percent, while the 30-year yield touched a record low of 2.195 percent.
The yield on the two-year bond, especially sensitive to Bank of Canada thinking, marked its lowest level since January at 0.863 percent.
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