The Canadian dollar tumbled Wednesday following comments from Bank of Canada Governor Stephen Poloz that an interest-rate cut "remains on the table."
In its quarterly monetary policy report, the central bank noted the Canadian economy would take a "material" hit from a protectionist Trump government.
The loonie fell swiftly after Mr. Poloz's rate comments, and as of 3:45 p.m. ET it stood at 75.37 cents (U.S.), down well over a cent from yesterday's close. On Tuesday, the loonie had reached a near three-month high and was up 3 per cent for the year, its best annual start since it became a floating currency in 1970 amid a pullback in the U.S. currency and signs the economy is picking up speed.
The BoC, which kept its key rate at 0.5 per cent, also warned Wednesday of a strengthening loonie in its report. "The recent appreciation of the Canadian dollar against the currencies of some key competitors is projected to weigh on Canadian export growth," it said.
The U.S. is on a divergent rate path from Canada, lending strength to the greenback, which has surged over the past three years. The Federal Reserve hiked rates in December and is projected to do so two or three times in 2017.
The implied probability of a BoC rate hike by the end of the year dipped to 37 per cent from 40 per cent before the announcement, data from the overnight index swaps market showed.
Here's what some market pros were saying today:
"The market understood that even though (the central bank) revised its (econony) forecast higher that it still had a rate cut at the back of its mind," said Jimmy Jean, senior economist at Desjardins.
"I think what this (interest rate announcement) really hammers home is that they (the Bank of Canada) are in no mood to raise interest rates this year," said Andrew Kelvin, senior rates strategist at TD Securities.
Market participants who had got long Canadian dollars were forced to cover as the currency tumbled, said Michael Goshko, corporate risk manager at Western Union Business Solutions.
With files from Bloomberg and Reuters