C$ softens to 2-week low in wake of Bank of Canada shift

TORONTO: The Canadian dollar slid to a two-week low on Thursday after a policy shift by the country's central bank on Wednesday fueled expectations that interest rates will stay low for longer than had been anticipated.

Highlighting weaker-than-expected growth and inflation, the Bank of Canada on Wednesday dropped any mention of eventual rate increases from its latest policy statement after more than a year of warning that rates will one day have to rise.

The central bank has kept rates at 1 percent since 2010, and analysts said the removal of the Bank of Canada's rate-rise bias represented a more neutral tone for policy.

"It was a pretty notable shift in the Bank of Canada's message, so it's taken a couple sessions to fully digest that news," said Greg Moore, FX strategist at TD Securities in Toronto.

Overnight index swaps, which trade based on expectations for the central bank's policy rate, showed that after the Bank's statement, traders slashed bets that rates will rise late next year and priced in a small chance of a cut before then.

The Canadian dollar was at C$1.0409 versus the greenback, or 96.07 US cents, weaker than Wednesday's close of C$1.0384, or 96.30 US cents. The loonie earlier hit a session low of C$1.04018.

Economic data overseas had little impact on the Canadian dollar as reports showed a gauge of Chinese manufacturing rose to a seven-month high in October, while the euro zone economy was expanding only slowly.

"None of that really changes the bigger picture at the moment," Moore said, noting investors also remained focused on the monetary policy path for the Federal Reserve.

A disappointing US jobs report released earlier this week reaffirmed analysts' view that the Fed may wait until next year before reducing the pace of its economic stimulus program.

Canadian government bond prices were higher across the maturity curve. The two-year bond was up 3.7 Canadian cents to yield 1.090 percent and the benchmark 10-year bond gained 26 Canadian cents to yield 2.402 percent.