The Canadian dollar weakened to a more-than five-week low against the greenback on Wednesday, as comments by the Federal Reserve that were seen by some investors as hawkish offset domestic data showing stronger-than-expected economic growth.
The U.S. dollar gained against a basket of currencies after the Fed cut interest rates by 25 basis points as expected, its first ease in more than a decade.
Although rate cuts are intended to weaken the currency, the greenback jumped as Fed Chair Jerome Powell during the subsequent news conference called the cut a mid-cycle policy adjustment, as opposed to the start of a rate-cutting cycle.
“It has to be said that the market is viewing this as pretty hawkish ... so it’s no surprise that dollar-CAD is heading a bit higher,” said Christian Lawrence, a senior market strategist at Rabobank.
The downward move in the loonie came despite data showing the Canadian economy grew 0.2 per cent in May, beating estimates for 0.1 per cent growth, thanks to a rebound in manufacturing.
Still, the high debt loads and depleted savings of Canadians look set to crimp their spending for as long as decades, economists say, with consumers already scaling back after borrowing costs began to rise in 2017.
At 4:01 p.m. (2001 GMT), the Canadian dollar was trading 0.3 per cent lower at 1.3196 to the greenback, or 75.78 U.S. cents. The currency hit its lowest intraday level since June 24 at 1.3214.
Meanwhile, the price of oil, one of Canada’s major exports, rose for a fifth day following a larger-than-expected drop in U.S. inventories and after the Fed cut interest rates. U.S. crude oil futures settled 1 per cent higher at $58.58 a barrel.
Canadian government bond prices were mixed across a flatter yield curve in sympathy with U.S. Treasuries. The two-year fell 4.5 Canadian cents to yield 1.556 per cent and the 10-year was up 7 Canadian cents to yield 1.486 per cent.
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