C$ hits weakest in nearly a month as greenback surges

TORONTO: The Canadian dollar fell to its weakest level in nearly a month against a soaring greenback on Tuesday as confusion about the Bank of Canada's interest-rate stance contrasted with growing confidence the US Federal Reserve will start lifting rates by midyear.

Canada is a major oil exporter and its currency was hurt by the plunge in oil prices and then by the Bank of Canada's shock January rate cut response. Many strategists acknowledge being unsure of the bank's next move.

Don Mikolich, director of foreign exchange sales at CIBC World Markets, said CIBC has trimmed its forecast for the loonie to C$1.27 to the greenback from C$1.34 for coming quarters on the assumption the central bank's decision to hold rates steady last week would hold until economic recovery makes a rate hike feasible again.

That could be some time coming as the bank has warned that slumping oil prices will feed into weaker economic data for months. The market is bracing for the loss of 5,000 jobs in the February employment report due on Friday.

"How bad will bad be?" Mikolich asked. "Everybody is expecting the employment data on Friday to be the negative numbers the bank was alluding to."

The currency ended the North American session at C$1.2680 to the greenback, or 78.86 US cents, much weaker than Monday's close of C$1.2596, or 79.39 US cents. Tuesday's close was just off the day's low of C$1.2689, or 78.80 US cents, its weakest since Feb. 11.

Meanwhile, another stellar set of US jobs data last Friday and a subsequent chorus of hawkish Fed policymaker comments have pushed the greenback to multiyear highs against the euro and yen.

Oversupply, weak demand and expectations of a Fed rate hike have continued to hobble oil prices.

"It's very difficult to see the Canadian dollar recovering significantly anytime soon without some pretty material things changing," said Shaun Osborne, chief currency strategist at TD Securities. "That is to say the economy picks up significantly or we see a big turnaround in crude prices that gives the currency a psychological lift at least."

Canadian government bond prices were higher across the maturity curve, with the two-year up 1.5 Canadian cents to yield 0.592 percent and the benchmark 10-year up 37 Canadian cents to yield 1.534 percent.