TORONTO: The Canadian dollar gave back all of the previous session's gains on Thursday as the US dollar strengthened to 11-1/2 year highs against a basket of currencies after the European Central Bank said it will launch a massive bond-buying program to boost the economy.
The ECB also raised its economic growth forecasts but cut its inflation projection for 2015 to zero, reflecting the impact of last year's sharp drop in oil prices and euro weakness.
The loonie had strengthened sharply in the previous session after the Bank of Canada kept interest rates steady and indicated it was happy with how the market and the economy had reacted to its surprise 25 basis point interest rate cut in January.
"The bigger story for the Canadian dollar is the focus has just shifted away from the Bank of Canada to the more global picture," said Camilla Sutton, chief currency strategist at Scotiabank.
"All of the pieces were fairly negative ... so the combination of all of it has weighed on the Canadian dollar, but we're still within that broader range that we've been in for six weeks."
The Canadian dollar, which has been trading between about C$1.2350 and C$1.28 since late January, finished at C$1.2506 to the greenback, or 79.96 US cents, almost a cent weaker than Wednesday's close of C$1.2416, or 80.54 US cents.
"The bias remains buying on USD/CAD dips," said Jeremy Stretch, head of foreign exchange strategy at CIBC World Markets in London.
Stretch said downward momentum for the Canadian dollar may be a little slower now with much of the uncertainty over the Bank of Canada next rate move out of the way. Trading in the loonie will be more reliant on crude prices and expectations for the timing of a US Federal Reserve rate hike, he said.
Markets will be eyeing comments later on Thursday from Federal Reserve Bank of San Francisco President John Williams and Friday's US employment data for February for further direction.
In Canada, data on the country's January trade balance on Friday will also be in focus as the market looks for insight on how nonenergy exports are performing with low oil prices hurting energy exports.
Canadian government bond prices were lower across the maturity curve, with the two-year off 3.5 Canadian cents to yield 0.623 percent and the benchmark 10-year giving back 21 Canadian cents to yield 1.527 percent.
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