OTTAWA: The Canadian dollar weakened to a two-month low against its U.S. counterpart on Thursday after a surprise drop in domestic retail sales supported expectations for the Bank of Canada to leave interest rates on hold next month.
At 4:00 p.m. EST (2100 GMT), the Canadian dollar was trading 0.1 per cent lower at C$1.2713 to the greenback, or 78.66 U.S. cents. The currency’s strongest level of the session was C$1.2670, while it touched its weakest since Dec. 22 at C$1.2760.
The Bank of Canada expects growth to slow to a 2.2 per cent pace in 2018 after a projected 3.0 per cent in 2017.
The central bank raised interest rates in January for the third time since July. But money markets expect the benchmark rate to be left unchanged at 1.25 per cent when the bank makes its next rate decision on March 7.
“Risk assets have turned a lot more uncertain, and the Canadian dollar tends to be pretty strongly correlated to risk assets,” Marino said. The loonie has fallen 3.5 per cent since stocks on Wall Street lurched lower earlier this month. The price of oil, one of Canada’s major exports, was boosted by data showing a surprise draw in U.S. crude inventories. U.S. crude prices settled 1.8 per cent higher at $62.77 a barrel.
Canadian government bond prices were higher across the yield curve, with the two-year up 9.5 Canadian cents to yield 1.8 per cent and the 10-year rising 42 Canadian cents to yield 2.301 per cent.
The gap between Canada’s 2-year yield and its U.S. equivalent widened by 3.2 basis points to a spread of –45.4 basis points, its widest since June 14.
