The Canadian dollar weakened to a nearly four-week low against its U.S. counterpart on Tuesday as the greenback climbed broadly and investors bet that the Bank of Canada would forgo language pointing to further interest rate hikes.
Canada’s central bank is expected to hold its benchmark interest rate steady at 1.75 per cent on Wednesday and for the rest of this year, with calls for the next hike in early 2020 resting on a knife’s edge, a Reuters poll showed.
“Any hiking bias will probably be removed completely from the statement,” said Ranko Berich, head of market analysis at Monex Canada and Monex Europe. “The impetus for a rate hike has been removed by slowing economic data.”
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The Canadian economy has taken a hit from the province of Alberta’s mandatory production cut of oil - its biggest export - a slowdown in the housing market and wilting business sentiment over worries surrounding the U.S.-China trade war.
Canadian wholesale trade increased by 0.3 percent in February from January, Statistics Canada said on Tuesday. But trade was down 1.5 per cent after excluding the motor vehicle and motor vehicle parts and accessories subsector.
The U.S. dollar rose against a basket of major currencies as traders favored the greenback ahead of the release on Friday of U.S. gross domestic product data for the first three months of 2019.
At 3:23 p.m., the Canadian dollar was trading 0.7 per cent lower at 1.3436 to the greenback, or 74.43 U.S. cents, its biggest decline in nearly seven weeks. The currency touched its weakest level since March 29 at 1.3443.
The decline for the loonie came despite a nearly six-month high for the price of oil as sources said Gulf OPEC members were ready to raise output only if there was demand before offsetting any shortfall following a U.S. decision to end waivers for buyers of Iranian crude.
U.S. crude oil futures settled 1.1 per cent higher at $66.30 a barrel.
Canadian government bond prices were higher across the yield curve in sympathy with U.S. Treasuries. The two-year rose 8.5 cents to yield 1.576 per cent and the 10-year was up 27 cents to yield 1.758 per cent.
Canada’s two-year yield fell 1.9 basis points further below the yield on the equivalent U.S. bond to a spread of -78.8 basis points, its widest since March 22.