TORONTO: The Canadian dollar weakened to the lowest in more than 5-1/2 years against its US counterpart on Tuesday after factory sales data came in soft and the International Monetary Fund (IMF) cut its forecast for economic growth in Canada.
Manufacturing sales fell by 1.4 percent in November due to a sharp decrease in vehicle sales, according to Statistics Canada. The figure was double the expected decline, and the third slide in four months.
The IMF report trimmed its economic outlook for Canada in 2015 and 2016, and also forecast lower global economic growth.
"(The data and report) also adds to the expectations that the Bank of Canada will mark down its own growth forecasts for this year," said Bipan Rai, director of foreign exchange strategy at CIBC World Markets.
The Bank of Canada will issue its quarterly Monetary Policy Report on Wednesday morning. It is widely expected to keep interest rates unchanged, but trim its growth forecasts.
At 9:34 a.m. (1434 GMT), the Canadian dollar was at C$1.2050 to the greenback, or 82.99 US cents, more than a cent weaker than Monday's finish of C$1.1947, or 83.70 US cents, and the weakest level since April 2009.
The Canadian dollar was weaker against most major currencies.
Rai said the market was also pricing in expectations that closing the output gap in Canada will take longer than the Bank of Canada has estimated, as well as the risk that the central bank could cut rates sometime in the coming year.
Rai there was scope for the loonie to weaken to the C$1.21 level as early as this week, depending on how neutral or dovish the Bank of Canada will sound, and how much lower the growth revisions will be.
November retail sales and December inflation data on Friday will also be key currency drivers.
Canadian government bond prices were generally higher across the maturity curve, except for the two-year bond, which was flat with a yield of 0.859 percent and the benchmark 10-year bond, which was off 2 Canadian cents to yield 1.518 percent.
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