The Canadian dollar closed lower Wednesday after the Bank of Canada said it’s leaving the key overnight interest rate unchanged at 1 per cent and again suggested it will stay that low for some time.The currency was down 0.33 of a cent to 97.03 cents (U.S.).
In an announcement in late January, the bank had hinted that rate hikes were some ways off, saying at that time that “the timing of any such withdrawal [of monetary policy stimulus] is less imminent than previously anticipated.”
Since then, the loonie has fallen about 3 cents against the U.S. dollar and economic data have shown falling retail sales at the end of 2012, a contraction of economic growth in December and low inflationary pressures.
Some economists say they wouldn’t be surprised to see the loonie hit 95 cents before regaining parity with the greenback by the end of the year.
Others are more pessimistic.
John Johnston, chief strategist at Davis Rea Ltd., thinks it could go a lot lower as most commodity prices have peaked.
“I think that economic growth is going to disappoint the consensus, which means commodity prices will be weaker and the Canadian dollar will be weaker,” he said.
“No matter what your view on growth is, when you have an economy that is as unbalanced as Canada’s is, that hasn’t started the issue of household deleveraging yet, it’s going to lag the overall U.S. growth rate. And in that environment, that’s a drag on the Canadian dollar.”
Mr. Johnston thinks the loonie could “easily decline” into the range of 80 to 85 cents later this year or more likely in 2014.
Traders also looked ahead to the Canadian February employment report coming out Friday. Economists expect job creation of around 7,500.
Meanwhile, there was positive employment data two days before the release of the U.S. government’s employment report for February.
Payroll firm ADP said the U.S. private sector created 198,000 jobs last month. The data came out ahead of the U.S. government’s employment report for February. Economists had been expecting that report to show the economy created about 155,000 jobs.
The Federal Reserve’s latest economic survey also encouraged buyers on Wednesday.
The central bank’s so-called Beige Book said the U.S. economy expanded in all parts of the country in January and February, helped by strong auto sales, a continued recovery in housing and improved job prospects.
Prices for oil and metals were lower as the April crude contract on the New York Mercantile Exchange declined 39 cents to $90.43 a barrel after the U.S. Energy Information Administration reported that crude supplies climbed by 3.8 million barrels last week, much higher than the 1.1-million-barrel increase that analysts expected.
There was little reaction in the oil market to the death of Venezuelan president Hugo Chavez, who died Tuesday after a two-year battle with cancer. He oversaw a decline in oil production during his 14 years as the leader of Venezuela, which sits on the world’s second-largest oil reserves, and analysts don’t expect that trend to change immediately.
May copper lost 2 cents to $3.49 a pound while the April bullion contract was unchanged at $1,574.90 an ounce.Report Typo/Error