TORONTO: The Canadian dollar tumbled to a fresh 12-year low against its US counterpart on Wednesday as an oil rout deepened and global stocks fell, while the market raised bets that the Bank of Canada will cut interest rates.
US crude touched its lowest since 2003, as a global supply glut bumped up against bearish financial news that sparked deeper worries over demand.
Recent widening in credit spreads have tightened financial conditions, adding to the reasons for the Bank of Canada to cut rates today, according to a research note this morning from BMO Capital Markets.
On the other hand, some economists believe that the drop in the Canadian dollar has done the "heavy lifting" for the central bank, while a sharper move lower in the currency could weigh on confidence.
The market has fully discounted a rate cut by April. On Tuesday, a rate cut was not fully discounted until May. Moreover, it has implied a near 50-percent probability of a second rate cut by the end of the year.
At 9:08 a.m. EST (1408 GMT), the Canadian dollar was trading at C$1.4629 to the greenback, or 68.36 US cents, weaker than Tuesday's close of C$1.4559, or 68.69 US cents.
The currency's strongest level of the session was C$1.4554, while it hit its weakest level since April 2003 at C$1.4689.
Adding to the gloom for Canada's economy, a major oil and gas producer Husky Energy cut capital spending and production forecasts. In addition, a report by TD Securities said oil sands producers now lose money on every barrel produced.
Firmer-than-expected economic data reported by Statistics Canada was overshadowed by the spike in risk aversion.
Canadian manufacturing sales increased by 1.0 percent in November, breaking a three-month falling streak.
Wholesale trade surged by 1.8 percent in November from October, recording the first rise in five months.
Canadian government bond prices were higher across the maturity curve on the flight to safety. The two-year price was up 5.5 Canadian cents to yield 0.263 percent and the benchmark 10-year rose 48 Canadian cents to yield 1.126 percent.
The 10-year yield hit a fresh record low at 1.094 percent.
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