C$ hits weakest close in six years on US$ rally

TORONTO: The Canadian dollar slumped to its weakest finish in six years against its US counterpart on Wednesday, as a rallying greenback and slumping crude prices weighed on the currency.

The US dollar surged to a 12-year high against a basket of major currencies amid expectations the US Federal Reserve will begin hiking interest rates in the coming months and after the European Central Bank began buying sovereign bonds on Monday to try and boost growth and inflation in the region.

"It's still a game of US dollar strength ... that Fed hike is still months away," Benjamin Reitzes, senior economist and foreign exchange strategist at BMO Capital Markets. "It's going to be a tough environment for pretty much every currency against the US dollar."

The Canadian dollar ended the session at C$1.2761 to the US dollar, or 78.36 US cents, weaker than Tuesday's Bank of Canada finish of C$1.2680, or 78.86 US cents. It touched C$1.28 at one point during the session, matching levels hit at the end of January, and saw the softest close since March 12, 2009.

Brent crude rebounded from one-month lows while US prices ended the session slightly lower on record inventory levels in the United States.

The widening difference between Brent and US prices is particularly painful for oil-exporting Canada, said Reitzes, noting that gasoline prices in the country are typically priced off Brent crude, while oil exports are priced off West Texas Intermediate or Western Canadian Select.

"It's going to be tough for the Canadian dollar to make any headway ... The widening spread between Brent and WTI is a pretty sizeable negative," Reitzes added.

Investor are awaiting Friday's Canadian employment data for February for further direction. The forecast shows an expected 5,000-job decline, and Jack Spitz, managing director of foreign exchange at National Bank Financial, said a worse-than-expected figure could send the loonie well past C$1.28, toward C$1.30.

Canadian government bond prices were higher across the maturity curve, with the two-year up 1 Canadian cent to yield 0.583 percent and the benchmark 10-year up 36 Canadian cents to yield 1.497 percent.