TORONTO: The Canadian dollar weakened through a key psychological barrier to a six-week low on Thursday as the US dollar benefited from expectations that US interest rates will rise later this year, while Canadian rates are seen staying put.
Signals from the Bank of Canada on Wednesday that it is in no hurry to raise rates helped push the Canadian currency through the C$1.25 barrier on Thursday, but the greenback was on a roll against major currencies regardless.
"The US dollar is making some pretty reasonable strides across the board and correspondingly we've seen that C$1.25 level giving way," said Jeremy Stretch, head of foreign exchange strategy at CIBC World Markets in London.
"It seems that the path of least resistance is still firmly biased in favor of the US, so I think we are likely to try to squeeze to the topside, and the key level on the topside is probably C$1.2570," he added.
Since breaking weaker than C$1.20 to the US dollar earlier in May, the loonie has steadily lost ground.
At 9:46 a.m. EDT (1346 GMT), the Canadian dollar was at C$1.2526 to the US dollar, or 79.83 US cents, weaker than Wednesday's official close of C$1.2459, or 80.26 US cents, and close to its weakest point since April 15.
Stretch said market focus will be on Canadian gross domestic product data for the first quarter, due out on Friday. Analysts polled by Reuters expect a 0.3 percent annualized rate of growth for the first three months of 2015, but Stretch said a bigger-than-expected number could support the currency.
"That might provide some respite," he noted, adding that higher oil prices would help the loonie as well.
Oil prices steadied on Thursday after a two-day slide as investors awaited data from the US Energy Information Administration (EIA) to see how US oil production was responding to a recent surge in prices.
The Bank of Canada said Wednesday it will hold its benchmark rate steady. But some analysts questioned whether economic recovery in the United States will deliver the strong benefits to Canada that bank Governor Stephen Poloz said he expects from an export rise.
Canadian government bond prices were mixed across the maturity curve. The two-year fell 0.5 Canadian cent to yield 0.634 percent, while the benchmark 10-year fell 5 Canadian cents to yield 1.672 percent.
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