TORONTO: The Canadian dollar weakened to one-and-a-half-year low against its US counterpart on Wednesday as investors slashed expectations for further interest rate hikes from the Bank of Canada after a dovish interest rate announcement from the central bank.
The Bank of Canada kept its benchmark interest rate on hold at 1.75 percent, as expected, and said there might be more room for non-inflationary growth, suggesting the pace of future hikes could be more gradual.
“From where we were last time out, things are a little bit more dovish in tone, and, not surprisingly we’ve seen the Canadian dollar weaken in the wake of that,” said Michael Gregory, a senior economist at BMO Capital Markets.
Chances of a hike in January slumped from about 60 percent before the data to 36 percent, the overnight index swaps market indicated.
At 10:59 a.m. (1559 GMT), the Canadian dollar was trading 0.8 percent lower at 1.3377 to the greenback, or 74.76 US cents. The currency touched its lowest since June 2017 at 1.3400.
The decline for the loonie came as global stocks were pressured by a renewal of worries about trade tensions and as the US dollar strengthened against a basket of major currencies.
The price of oil, one of Canada’s major exports, rose ahead of a meeting of the world’s biggest exporters who will discuss cutting output to help shore up prices and curb excess supply.
US crude prices were up 1.7 percent at $54.15 a barrel.
Two major pipelines carrying oil from Canada to the United States were hit by weather-related disruptions on Tuesday, the latest hit to Canada’s oil industry just days after the Alberta government announced forced cuts in crude production.
Canadian government bond prices were higher across the yield curve, with the two-year price up 13 Canadian cents to yield 2.048 percent and the 10-year rising 38 Canadian cents to yield 2.126 percent.
The 10-year yield hit its lowest intraday since July 19 at 2.118 percent.
US markets were closed on Wednesday to honor former US President George H.W. Bush, who died last Friday.